PRIVILEGED & CONFIDENTIAL — ATTORNEY WORK PRODUCT
MARKET SHARE DISPLACEMENT ANALYSIS
Optiwave Semiconductor Corp. v. Lumicore Technologies, Inc. Case No. 2:24-cv-00319-JRG (E.D. Tex.)
Date: June 2024
This memorandum constitutes attorney work product prepared in anticipation of litigation and is protected from disclosure by the work-product doctrine, Fed. R. Civ. P. 26(b)(3), and, to the extent it reflects or incorporates legal advice, by the attorney-client privilege. This document has been prepared for use in connection with Dr. Lawrence Keating's (Meridian Economic Consulting Group, LLC) damages expert report — specifically, the lost-profits analysis under the Panduit framework. Distribution of this memorandum is restricted to members of the Calderwood & Harkness litigation team, authorized in-house counsel at Optiwave Semiconductor Corp., and Dr. Keating and his authorized staff at Meridian Economic Consulting Group, LLC. All Lumicore financial data referenced herein is designated "Highly Confidential — Attorneys' Eyes Only" under the Stipulated Protective Order (Dkt. No. 47) and must be handled in accordance with its terms.
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I. EXECUTIVE SUMMARY
This memorandum establishes the factual and analytical basis for the 38.2% market-share displacement figure that serves as the central input into Optiwave Semiconductor Corp.'s ("OWS's") lost-profits damages model in this matter. The analysis has been prepared to support and inform Dr. Lawrence Keating's expert report on damages, which will be filed in accordance with the Court's scheduling order.
The 38.2% displacement rate represents the share of Lumicore Technologies, Inc.'s ("Lumicore's") accused-product sales that OWS would have captured "but for" Lumicore's infringement of OWS's asserted patents. The accused products at issue are Lumicore's LumiLink 400G-ZR+, LumiLink 800G-DR8, and LumiEdge 1600G-LR silicon-photonics transceiver modules, each of which practices one or more of the asserted patents — U.S. Patent Nos. 10,XXX,847 (the "'847 Patent"), 10,XXX,193 (the "'193 Patent"), 11,XXX,562 (the "'562 Patent"), and 11,XXX,015 (the "'015 Patent").
The 38.2% figure is the critical input into Dr. Keating's Panduit lost-profits calculation, which proceeds as follows:
Projected accused-product revenue (Q3 2022 – Q4 2025): ~$714.6 million
× 38.2% displacement rate = ~$273.0 million in sales OWS would have captured
× 47.3% OWS gross margin on competing products = ~$128.9 million in lost profits
The displacement analysis rests on four pillars: (a) customer-by-customer overlap data between OWS and Lumicore in the hyperscale data-center transceiver market, demonstrating that both companies compete head-to-head at 12 of the top 20 hyperscale operators; (b) OWS's competitive positioning as the third-largest U.S. supplier of silicon-photonics transceiver modules; (c) product-level substitutability between OWS and Lumicore offerings across three bandwidth tiers (400G, 800G, and 1600G); and (d) a thorough analysis of purported non-infringing alternatives and their inability to absorb the displaced demand.
The displacement rate of 38.2% is conservative and defensible at trial. Higher displacement rates — up to approximately 45.1% — are supportable under certain assumptions regarding OWS's stronger incumbent position and documented customer preference for OWS products. However, the 38.2% figure provides the most robust basis for trial presentation because it is grounded in actual pre-infringement market-share data and fully accounts for the multi-vendor sourcing dynamics characteristic of hyperscale data-center procurement. The sensitivity analysis presented in Section V.D demonstrates that the lost-profits figure remains substantial under even the most conservative assumptions.
This memorandum proceeds as follows. Section II provides background on the silicon-photonics transceiver market. Section III describes the methodology for the customer overlap analysis. Section IV presents the customer overlap findings. Section V calculates the displacement rate and provides a sensitivity analysis. Section VI surveys the supporting evidence. Section VII addresses non-infringing alternatives under Panduit Factor 2. Section VIII describes the relationship of the displacement analysis to other damages theories. Section IX anticipates Lumicore's likely challenges and sets forth rebuttal points. Section X presents conclusions and recommendations. Supporting data tables and source materials are compiled in the Appendices.
II. BACKGROUND: THE SILICON-PHOTONICS TRANSCEIVER MARKET
A. Market Overview
Silicon-photonics transceiver modules are critical, high-value components in hyperscale data-center interconnect architectures. These modules enable high-bandwidth optical communication between servers, top-of-rack switches, spine switches, and routers within and between data-center facilities. By leveraging silicon-based photonic integrated circuits ("PICs"), silicon-photonics transceivers achieve superior performance, density, and cost-efficiency compared to legacy indium phosphide or discrete-optics-based transceivers. As hyperscale data-center operators continue to deploy AI/ML training clusters, high-performance computing environments, and next-generation cloud infrastructure, demand for silicon-photonics transceivers has grown rapidly and is projected to continue accelerating.
The United States market for silicon-photonics transceivers serving hyperscale data centers was estimated at approximately $3.8 billion in fiscal year 2023, according to publicly available industry analyst reports and the market-sizing analysis performed by Gregory Falk in his draft industry expert report. Projected growth is expected to carry the U.S. hyperscale silicon-photonics transceiver market to approximately $5.2 billion by fiscal year 2025, reflecting a compound annual growth rate of approximately 17% over the two-year period. This growth is driven by the continued buildout of hyperscale data-center capacity in the United States, the transition from 400G to 800G and 1600G interconnect speeds, and the increasing adoption of co-packaged optics and advanced coherent transceiver architectures.
The market is concentrated among a relatively small number of suppliers. The top five silicon-photonics transceiver suppliers control approximately 78% of U.S. hyperscale revenue, reflecting the high barriers to entry in this market segment. Those barriers include the substantial capital investment required for silicon-photonics fabrication and packaging, the time-consuming and rigorous vendor-qualification processes imposed by hyperscale data-center operators, and the need for deep technical expertise in photonic integrated circuit design, advanced packaging, and coherent digital signal processing. The concentrated nature of this market is significant for the displacement analysis because it means that volume lost by one qualified supplier is likely to be absorbed by another qualified supplier — not by fringe competitors or new entrants.
OWS is the third-largest U.S. supplier of silicon-photonics transceiver modules for the hyperscale data-center market. OWS reported fiscal year 2023 revenue of $487.3 million, per its audited financial statements prepared by Gresham & Whitfield LLP. Of that total, approximately $310 million is attributable to products that practice one or more of the asserted patents — specifically, the OWS-400ZR, OWS-800XR, and OWS-1600DR transceiver module families. OWS's net income for FY 2023 was $61.4 million. The company maintains approximately 1,250 employees across its headquarters and manufacturing facilities. Ridgeline Capital Partners, LP acquired a 55% stake in OWS in 2019 for $780 million, reflecting the market's assessment of OWS's competitive position, technology portfolio, and growth trajectory.
Lumicore Technologies, Inc. is a fast-growing entrant in the silicon-photonics transceiver market. Lumicore completed its initial public offering on Nasdaq in March 2022 at $24 per share and has since grown rapidly, in significant part through sales of the accused products. Lumicore reported fiscal year 2023 revenue of $312.6 million, per its Form 10-K filed with the SEC (audited by Brennan Kellogg & Associates LLP). Accused-product revenue for FY 2023 totaled $264.9 million, representing approximately 84.7% of Lumicore's total revenue. As of April 22, 2024 — the date this action was filed — Lumicore's stock was trading at approximately $37 per share, with a market capitalization of approximately $3.4 billion based on 91.8 million shares outstanding.
B. Relevant Product Categories
Three product tiers are at issue in this litigation, corresponding to distinct bandwidth generations in the silicon-photonics transceiver market. Each tier involves a direct competitive matchup between an OWS product and a Lumicore accused product, as summarized below.
400G-ZR/ZR+ Tier. OWS's OWS-400ZR transceiver module competes directly with Lumicore's LumiLink 400G-ZR+ (an accused product). Both products conform to the Optical Internetworking Forum ("OIF") 400ZR implementation agreement specification and are designed for data-center interconnect ("DCI") and campus-interconnect applications. The LumiLink 400G-ZR+ launched in the third quarter of 2022. In fiscal year 2023, the LumiLink 400G-ZR+ generated revenue of $94.8 million. The OWS-400ZR was already established in the market at the time of LumiLink 400G-ZR+ launch; OWS was the incumbent supplier at eight of the ten overlap customers at this tier.
800G-DR8 Tier. OWS's OWS-800XR transceiver module competes directly with Lumicore's LumiLink 800G-DR8 (an accused product). Both products are designed for short-reach (up to 2 km) 800 Gbps interconnects using eight-lane parallel single-mode fiber ("PSM8") architecture. The LumiLink 800G-DR8 launched in the first quarter of 2023. In fiscal year 2023, the LumiLink 800G-DR8 generated revenue of $128.4 million. OWS was the first-to-market supplier at six of the nine overlap customers at this tier. Lumicore entered this tier aggressively and pursued OWS's installed base with competitive pricing and rapid qualification efforts.
1600G-LR Tier. OWS's OWS-1600DR transceiver module competes directly with Lumicore's LumiEdge 1600G-LR (an accused product). Both products target next-generation 1.6 Tbps long-reach interconnect applications using advanced coherent modulation and high-density photonic integration. The LumiEdge 1600G-LR launched in the fourth quarter of 2023. In fiscal year 2023, the LumiEdge 1600G-LR generated revenue of $41.7 million. This tier is newer and still in the early stages of customer adoption; OWS's OWS-1600DR was in the vendor-qualification pipeline at several operators when Lumicore launched its competing product.
Total accused-product revenue for fiscal year 2023 across all three tiers is calculated as follows:
$94.8M (LumiLink 400G-ZR+) + $128.4M (LumiLink 800G-DR8) + $41.7M (LumiEdge 1600G-LR) = $264.9 million
Per Dr. Keating's preliminary analysis, total accused-product revenue over the infringement period (Q3 2022 through Q1 2024) is approximately $378.2 million. Projected accused-product revenue from the beginning of infringement through trial (Q3 2022 through Q4 2025) is approximately $714.6 million. These projections incorporate Lumicore's internal revenue forecasts (produced in discovery), historical growth rates, and market-level demand forecasts from industry analyst reports.
C. Customer Base: Hyperscale Data-Center Operators
The primary customers for both OWS and Lumicore are hyperscale data-center operators. This category includes the major U.S. cloud service providers, large internet-services companies, and enterprise colocation providers that operate at hyperscale — generally defined as data-center operators with more than 5,000 servers per facility and aggregate computing capacity measured in hundreds of thousands of servers or more. These operators purchase silicon-photonics transceiver modules in high volumes, typically through formal procurement processes that involve rigorous vendor-qualification testing, multi-year supply agreements, and periodic volume-allocation reviews.
The relevant customer universe for this displacement analysis consists of the top 20 hyperscale data-center operators in the United States ranked by annual transceiver procurement spend. These 20 operators collectively account for approximately 85% of all U.S. hyperscale silicon-photonics transceiver purchases. The remaining 15% is distributed among a long tail of smaller data-center operators, telecommunications carriers, and enterprise customers that purchase silicon-photonics transceivers in lower volumes and are not material to the displacement analysis.
Gregory Falk, plaintiff's industry expert and former Vice President of Engineering at Solara Optics, Inc., has identified and profiled each of these 20 operators in his draft industry expert report. Mr. Falk's report includes an assessment of each operator's transceiver procurement volume, vendor-qualification requirements, sourcing strategy (including the number of qualified vendors per product tier), and competitive dynamics. Mr. Falk's analysis provides independent corroboration of the customer overlap findings presented in this memorandum.
The hyperscale data-center customer base is characterized by several features that are important to the displacement analysis. First, these customers impose rigorous vendor-qualification requirements, meaning that only a limited number of transceiver suppliers are approved to bid on and fulfill procurement orders at any given operator. Second, hyperscale operators typically maintain multi-vendor sourcing strategies, qualifying two to three vendors per product tier to ensure supply-chain resilience and maintain pricing leverage. Third, once a vendor is qualified and has achieved a production-level design-in at an operator, switching costs are relatively low at the component level (because products conform to industry-standard form factors and interfaces), but the qualification process itself represents a significant investment of time and resources. These dynamics are central to understanding how Lumicore's entry with infringing products displaced OWS's sales at overlap customers.
III. METHODOLOGY: CUSTOMER OVERLAP ANALYSIS
A. Data Sources
The displacement analysis draws on the following categories of data, each of which has been compiled, reviewed, and cross-referenced by the Calderwood & Harkness litigation team:
OWS Internal Sales Records. OWS has produced in discovery its complete customer-by-customer revenue, unit-volume, and pricing data for the OWS-400ZR, OWS-800XR, and OWS-1600DR transceiver module families covering fiscal years 2021 through 2024 (partial year). These records identify each customer by name, report quarterly revenue and unit shipments by product SKU, and include average selling prices, discount structures, and volume-based pricing tiers. The data has been reconciled to OWS's audited financial statements (prepared by Gresham & Whitfield LLP) and provides a reliable, comprehensive picture of OWS's sales performance at each of the top 20 hyperscale operators.
Lumicore Product-Level Financial Data. Lumicore has produced in discovery, pursuant to the Court's order on plaintiff's motion to compel, customer-by-customer revenue breakdowns for the LumiLink 400G-ZR+, LumiLink 800G-DR8, and LumiEdge 1600G-LR accused products, covering fiscal years 2022 through 2024 (partial year). This data has been designated "Highly Confidential — Attorneys' Eyes Only" under the Stipulated Protective Order (Dkt. No. 47). The Lumicore data includes quarterly revenue by customer, unit shipments, average selling prices, and product-level gross-margin information. Lumicore's accused-product gross margins range from 52.1% for the LumiLink 400G-ZR+ to 58.3% for the LumiEdge 1600G-LR, reflecting the premium pricing associated with the newer, higher-bandwidth product. All references to Lumicore's customer-specific financial data in this memorandum and its appendices are subject to the AEO designation and handling requirements of the Protective Order.
Industry Analyst Reports. Publicly available market research from recognized industry analyst firms has been used to corroborate the overall market size, growth projections, and competitive landscape described in this memorandum. These reports provide an independent check on the reasonableness of the customer-level data and market-share figures derived from the parties' internal records.
Deposition Testimony. Two key depositions provide direct evidentiary support for the displacement analysis:
• Dr. Sandra Michaud (Lumicore Chief Technology Officer), deposed November 19, 2024. Dr. Michaud provided testimony regarding Lumicore's product development strategy, customer targeting, and the design of the LumiLink 400G-ZR+ as a "drop-in replacement" for incumbent transceiver modules. Her testimony is directly relevant to the competitive dynamics and customer-diversion evidence discussed in Section VI.
• Angela Reeves (FairPoint Licensing Group, LLC), deposed December 10, 2024. Ms. Reeves testified regarding the pre-suit licensing negotiations between OWS (through its licensing agent, FairPoint) and Lumicore, including the in-person meeting held on April 20, 2023, in Austin, Texas, at which Lumicore's representatives declined to engage in substantive license negotiations.
OWS Customer-Relationship Data. Karen Whitfield, OWS's Vice President of Sales, has provided detailed information regarding OWS's customer relationships, including qualification status at each of the top 20 hyperscale operators, design-in history, volume-allocation trends, and specific instances of competitive displacement by Lumicore's accused products. Ms. Whitfield's information has been compiled through interviews with the litigation team and will be memorialized in customer-impact declarations (template prepared as a separate document in the matter file).
Gregory Falk's Industry Analysis. Mr. Falk, plaintiff's industry expert, has contributed his personal knowledge of competitive dynamics in the silicon-photonics transceiver market, based on his extensive career in the industry, including his tenure as Vice President of Engineering at Solara Optics, Inc. Mr. Falk's analysis of the top 20 hyperscale operators, their procurement practices, and the competitive positioning of OWS and Lumicore provides independent corroboration of the customer overlap findings.
B. Analytical Framework
The displacement analysis proceeds in four sequential steps, each of which is described in detail in the sections that follow:
Step 1: Identify the Top 20 Hyperscale Data-Center Operators. The first step identifies the universe of relevant customers by ranking U.S. hyperscale data-center operators by annual transceiver procurement spend. This customer universe has been established through a combination of OWS and Lumicore sales records, industry analyst data, and Gregory Falk's industry expertise. The top 20 operators account for approximately 85% of all U.S. hyperscale silicon-photonics transceiver purchases and represent the entire addressable market relevant to the displacement analysis.
Step 2: Determine Overlap. For each of the top 20 operators, the analysis determines whether both OWS and Lumicore are qualified vendors — that is, whether both companies have passed the operator's vendor-qualification process and are on the operator's approved vendor list for at least one of the three product tiers at issue (400G, 800G, or 1600G). Vendor-qualification status is determined based on OWS's internal qualification records, Lumicore's discovery productions, and publicly available information regarding the operators' approved vendor programs. An operator is classified as an "overlap" customer if both OWS and Lumicore hold active, unconditional vendor qualifications at that operator for one or more of the relevant product tiers during the infringement period.
Step 3: Assess Substitutability. For each overlap customer, the analysis assesses whether OWS's competing product is a technically and commercially viable substitute for the accused Lumicore product. The substitutability assessment considers bandwidth specification, optical-module form factor, electrical and optical interface standards, protocol interoperability, thermal performance, power consumption, and qualification status at the specific operator. This step confirms that, at each overlap customer, OWS's product would have been a realistic alternative for the customer "but for" Lumicore's availability as a competing supplier with infringing products.
Step 4: Calculate Displacement Rate. The final step estimates the share of Lumicore's sales to overlap customers that OWS would have captured in a "but for" world, taking into account competitive dynamics, multi-vendor sourcing policies, OWS's historical share at each customer, and pricing considerations. This step produces the weighted-average displacement rate that is applied to Lumicore's total projected accused-product revenue to determine the lost-profits base.
The analytical framework is designed to be transparent, replicable, and grounded in verifiable data. Each step relies on documented evidence from the parties' discovery productions, publicly available information, and expert analysis. The framework is consistent with the Panduit lost-profits methodology and is structured to withstand Daubert scrutiny.
IV. CUSTOMER OVERLAP FINDINGS
A. Head-to-Head Competition at 12 of 20 Operators
Of the top 20 hyperscale data-center operators in the United States, OWS and Lumicore compete head-to-head — that is, both are qualified, approved vendors — at 12 operators. At these 12 overlap customers, both OWS and Lumicore have successfully completed vendor-qualification testing and hold active positions on the operator's approved vendor list for at least one of the three product tiers at issue (400G-ZR/ZR+, 800G-DR8, or 1600G-LR). This overlap is a direct consequence of the fact that OWS and Lumicore offer competing silicon-photonics transceiver products targeting the same end-market applications and the same customer base.
The remaining 8 operators fall into two distinct categories, neither of which supports a lost-profits claim:
• 4 operators where OWS is a qualified vendor but Lumicore is not. At these operators, Lumicore is either in the vendor-qualification pipeline (i.e., has submitted products for qualification testing but has not yet received approval) or has not sought qualification. Because Lumicore is not making accused-product sales at these operators, there is no displacement to analyze and no basis for a lost-profits claim. These operators are excluded from the displacement calculation entirely.
• 4 operators where Lumicore is a qualified vendor but OWS is not. At these operators, OWS has not completed the vendor-qualification process for the relevant product tiers during the infringement period. Because OWS cannot demonstrate that it would have been in a position to capture these sales "but for" Lumicore's infringement — OWS was not a qualified, approved vendor at these operators — these sales are excluded from the lost-profits model. The revenue Lumicore earned from these 4 non-overlap customers instead forms part of the base for the reasonable-royalty damages theory, which does not require proof that OWS would have made the sale.
The 12-of-20 overlap finding is robust. OWS's vendor-qualification records, which have been produced in discovery and reviewed by the litigation team, confirm that OWS held active, unconditional vendor qualifications at all 12 overlap customers throughout the relevant infringement period. There is no ambiguity or conditionality in OWS's qualification status at these customers that Lumicore could exploit to challenge the overlap finding.
B. Breakdown by Product Tier
The overlap between OWS and Lumicore varies by product tier, reflecting differences in the timing of product launches, the pace of vendor qualification, and the maturity of customer adoption at each bandwidth generation.
400G-ZR/ZR+ Tier. OWS and Lumicore overlap at 10 of the top 20 operators in the 400G-ZR/ZR+ product tier. The OWS-400ZR is a direct functional and technical substitute for the LumiLink 400G-ZR+. Both products comply with the OIF 400ZR implementation agreement specification, which defines the optical, electrical, and management-interface parameters for 400G coherent transceivers in QSFP-DD and OSFP form factors. At the time the LumiLink 400G-ZR+ launched in the third quarter of 2022, OWS was the incumbent supplier at 8 of these 10 overlap customers — meaning OWS had an established supply relationship, a production-level design-in, and was actively shipping OWS-400ZR modules to the customer. At the remaining 2 overlap customers, OWS was a qualified vendor but had not yet achieved primary-supplier status.
800G-DR8 Tier. OWS and Lumicore overlap at 9 of the top 20 operators in the 800G-DR8 product tier. The OWS-800XR is a direct substitute for the LumiLink 800G-DR8, offering equivalent bandwidth, lane configuration, and reach specifications. OWS was the first-to-market supplier at 6 of these 9 overlap customers — meaning OWS had completed qualification and was shipping OWS-800XR modules before Lumicore's LumiLink 800G-DR8 received qualification approval at those customers. Lumicore entered this tier in the first quarter of 2023 and aggressively pursued OWS's installed base through competitive pricing, expedited qualification efforts, and direct engagement with customers' optical-engineering and supply-chain teams. The 800G-DR8 tier represents the largest single component of Lumicore's accused-product revenue and is the tier where competitive displacement is most pronounced.
1600G-LR Tier. OWS and Lumicore overlap at 5 of the top 20 operators in the 1600G-LR product tier. This tier is the newest and still in the early stages of commercial adoption. The LumiEdge 1600G-LR launched in the fourth quarter of 2023, and the OWS-1600DR was in the vendor-qualification pipeline at several operators during the same period. Both products target the same next-generation 1.6 Tbps long-reach interconnect applications and are designed for advanced coherent modulation formats. The smaller overlap at this tier reflects the fact that vendor-qualification processes for 1600G products are ongoing at many operators, and the addressable market is still developing. As additional operators complete qualification of both OWS and Lumicore 1600G products, the overlap at this tier is expected to increase, potentially expanding the displacement claim in future damages periods.
C. Revenue Concentration at Overlap Customers
A critical finding of the customer overlap analysis is that Lumicore's accused-product sales are heavily concentrated at the 12 overlap customers where OWS is also a qualified, competing vendor. This concentration is significant because it means that the majority of Lumicore's accused-product revenue is directly at OWS's expense — these are sales at customers where OWS was present, qualified, and competing for the same volume.
Based on Lumicore's customer-by-customer revenue data (AEO-designated), the revenue distribution is as follows:
• Approximately 72.4% of Lumicore's total accused-product revenue in fiscal year 2023 was derived from the 12 overlap customers where both OWS and Lumicore are qualified vendors.
• Approximately 27.6% of Lumicore's total accused-product revenue in fiscal year 2023 was derived from the 8 non-overlap operators where OWS is not a qualified vendor.
In dollar terms, this translates to approximately $191.7 million of Lumicore's $264.9 million in FY 2023 accused-product revenue coming from the 12 overlap customers, and approximately $73.2 million coming from the 8 non-overlap operators.
This revenue concentration ratio (72.4% at overlap customers / 27.6% at non-overlap customers) has been tested for stability across the full infringement period (Q3 2022 through Q1 2024) and across each product tier individually. The ratio is consistent, with quarterly fluctuations of no more than ±3 percentage points. This consistency supports the reliability of using the 72.4% overlap revenue share as a stable input in the displacement calculation for the full projected damages period (Q3 2022 through Q4 2025).
Among the East District of Texas venue customers specifically identified in the complaint, three are overlap customers:
• Pinnacle Data Systems, LLC (Longview, Texas): Purchases both OWS and Lumicore transceiver modules across multiple product tiers. Pinnacle is classified as an overlap customer and is among the 12 operators at which both OWS and Lumicore hold active vendor qualifications.
• Frontier Cloud Services, Inc. (Marshall, Texas): Purchases both OWS and Lumicore transceiver modules. Frontier is classified as an overlap customer and has been the site of direct competitive displacement, with OWS losing volume allocations to Lumicore's LumiLink 800G-DR8 in the second and third quarters of 2023.
• CrossPoint Networking Corp. (Plano, Texas): Purchases both OWS and Lumicore transceiver modules. CrossPoint is classified as an overlap customer and has recently expanded its qualified vendor list for the 1600G tier to include both OWS and Lumicore.
These venue-specific overlap customers provide concrete, localized examples of the competitive displacement documented throughout this memorandum and will serve as compelling trial evidence.
D. Table: Top 20 Hyperscale Operators — Overlap Summary
The following table summarizes the overlap status and revenue distribution for the top 20 hyperscale data-center operators. Customer identities are anonymized using alphabetical designators (Customers A through T) in accordance with the Protective Order. The underlying customer-identity key is maintained separately in the privileged matter file and is available to authorized personnel on a need-to-know basis.
Summary:
• Overlap customers (A–L): 12 operators; Lumicore FY23 accused revenue: ~$191.7M (72.4% of $264.9M)
• Non-overlap customers — OWS only (M–P): 4 operators; Lumicore FY23 accused revenue: $0.0M
• Non-overlap customers — Lumicore only (Q–T): 4 operators; Lumicore FY23 accused revenue: ~$73.2M (27.6% of $264.9M)
V. DISPLACEMENT RATE CALCULATION
A. Step 1: Overlap Revenue Base
The first input into the displacement rate calculation is the share of Lumicore's total accused-product revenue that is attributable to sales at the 12 overlap customers. As established in Section IV.C, this share is 72.4%.
Applied to Lumicore's total projected accused-product revenue through trial, the overlap revenue base is calculated as follows:
Projected total accused-product revenue (Q3 2022 – Q4 2025): ~$714.6 million
× 72.4% overlap revenue share = ~$517.4 million attributable to overlap customers
The remaining approximately $197.2 million (27.6%) of projected accused-product revenue is attributable to the 8 non-overlap customers where OWS is not a qualified vendor. This revenue does not support a lost-profits claim because OWS cannot demonstrate that it would have made these sales in a "but for" world. Instead, these sales form the base for the reasonable-royalty damages theory, as discussed in Section VIII.A.
B. Step 2: OWS's Capture Rate at Overlap Customers
The second input into the displacement rate calculation is OWS's capture rate at the 12 overlap customers — that is, the share of the Lumicore's overlap-customer sales that OWS would have captured "but for" Lumicore's infringement.
It is critical to recognize that OWS would not have captured 100% of Lumicore's sales at the overlap customers, even in a hypothetical "but for" world. Hyperscale data-center operators typically maintain multi-vendor sourcing strategies, qualifying two to three vendors per product tier to ensure supply-chain resilience, mitigate single-source risk, and maintain competitive pricing leverage. In a "but for" world where Lumicore was unable to offer the accused products (because those products incorporate patented technology that Lumicore would not have been able to use), the overlap customers would have redistributed Lumicore's volume among their remaining qualified vendors — including OWS, but also potentially including one or two other qualified suppliers at each customer.
OWS's capture rate at the overlap customers has been estimated based on historical sourcing patterns — specifically, OWS's actual share of total transceiver purchases at each of the 12 overlap customers during the pre-infringement period (FY 2021 through Q2 2022, prior to the launch of the first accused product in Q3 2022). This pre-infringement share data reflects the volume allocation that each customer assigned to OWS under normal competitive conditions, before Lumicore's entry with infringing products distorted the market.
The key findings from the historical share analysis are as follows:
• OWS's share of available transceiver volume at the 12 overlap customers ranged from 40% to 65%, depending on the customer and product tier.
• OWS was the primary vendor (holding more than 50% of the customer's transceiver volume in the relevant product tier) at 7 of the 12 overlap customers.
• OWS was a secondary vendor (holding 25% to 50% of the customer's transceiver volume) at 4 of the 12 overlap customers.
• OWS was a tertiary vendor (holding less than 25% of the customer's transceiver volume) at 1 of the 12 overlap customers.
The weighted-average capture rate has been calculated by weighting OWS's pre-infringement share at each overlap customer by that customer's projected share of Lumicore's accused-product revenue. This revenue-weighting approach ensures that the capture rate properly reflects the relative importance of each customer in the displacement analysis — larger customers, where OWS holds a stronger position, receive greater weight than smaller customers where OWS holds a weaker position.
The resulting weighted-average capture rate at the 12 overlap customers is 52.8%. This figure represents OWS's best estimate of the share of Lumicore's overlap-customer volume that OWS would have captured in a "but for" world, based on actual pre-infringement market-share data. The 52.8% figure is consistent with the fact that OWS was the primary vendor at a majority of the overlap customers and held strong incumbent positions supported by long-standing customer relationships, established design-ins, and demonstrated product performance.
C. Step 3: Calculation of Displacement Rate
The displacement rate is the product of the two inputs derived in Steps 1 and 2:
Displacement rate = Overlap revenue share × OWS capture rate at overlap customers
Displacement rate = 72.4% × 52.8% = 38.2%
This means that OWS would have captured approximately 38.2% of Lumicore's total accused-product revenue "but for" Lumicore's infringement. The 38.2% figure applies to Lumicore's total projected accused-product revenue, encompassing both overlap and non-overlap customer sales, because the non-overlap customers' contribution (27.6%) is effectively zeroed out through the 0% capture rate at those customers. The mathematics confirm that the displacement rate is, in substance, the overall share of Lumicore's revenue that flows to OWS in a "but for" scenario.
In dollar terms, the displacement calculation yields the following results:
Projected accused-product revenue (Q3 2022 – Q4 2025): ~$714.6 million
× 38.2% displacement rate = ~$273.0 million in sales OWS would have captured
The lost-profits damages calculation then applies OWS's gross margin on competing products:
$273.0 million displaced revenue × 47.3% OWS gross margin = ~$128.9 million in lost profits
The 47.3% gross margin figure is derived from OWS's internal financial data, specifically the product-level cost and revenue data for the OWS-400ZR, OWS-800XR, and OWS-1600DR module families as reported in OWS's discovery productions. This margin has been verified against OWS's audited financial statements and represents the weighted-average gross margin across the three competing product families, accounting for product mix.
D. Sensitivity Analysis
To demonstrate the robustness of the 38.2% displacement rate and to provide Dr. Keating with a range of defensible figures for use in his expert report, the following sensitivity analysis has been prepared. The sensitivity analysis varies the key input — OWS's capture rate at overlap customers — while holding the overlap revenue share constant at 72.4%.
Conservative Scenario (35.0% Displacement Rate):
• Assumption: OWS's capture rate at overlap customers is reduced to 48.3%, reflecting a scenario in which one additional overlap customer would have allocated a greater share of volume to a third competing vendor rather than to OWS.
• Calculation: 72.4% × 48.3% = 35.0%
• Lost profits: $714.6M × 35.0% × 47.3% = ~$118.3 million
Base Case (38.2% Displacement Rate):
• Assumption: OWS's capture rate at overlap customers is 52.8%, based on actual pre-infringement market-share data with revenue weighting.
• Calculation: 72.4% × 52.8% = 38.2%
• Lost profits: $714.6M × 38.2% × 47.3% = ~$128.9 million
Aggressive Scenario (45.1% Displacement Rate):
• Assumption: OWS's capture rate at overlap customers is increased to 62.3%, reflecting OWS's stronger incumbent position at key overlap customers during the pre-infringement period and documented customer preference for OWS products in qualification records and internal procurement communications.
• Calculation: 72.4% × 62.3% = 45.1%
• Lost profits: $714.6M × 45.1% × 47.3% = ~$152.6 million
The following table summarizes the sensitivity analysis:
Recommendation. The base-case displacement rate of 38.2% is the most defensible figure for trial presentation and should be adopted as the central input in Dr. Keating's lost-profits model. This figure is grounded in actual pre-infringement market-share data, is consistent with the documented multi-vendor sourcing practices of hyperscale data-center operators, and occupies a moderate position within the range of supportable estimates. The conservative scenario (35.0%) represents a reasonable floor for settlement purposes, while the aggressive scenario (45.1%) represents an upper bound that is defensible but increases vulnerability to Daubert challenges and cross-examination. Dr. Keating should present the base case in his report while referencing the sensitivity analysis to demonstrate robustness.
VI. SUPPORTING EVIDENCE
A. OWS's Competitive Position
The displacement analysis is strengthened by OWS's strong competitive position in the silicon-photonics transceiver market, which makes it the most likely beneficiary of any reallocation of Lumicore's sales volume at overlap customers.
OWS is the third-largest U.S. supplier of silicon-photonics transceiver modules for hyperscale data centers. The company has been in the silicon-photonics business since 2014 and has built a reputation for technical innovation, product reliability, and responsive customer support. OWS's fiscal year 2023 revenue of $487.3 million places it among the top tier of U.S. transceiver suppliers, and its net income of $61.4 million demonstrates consistent profitability.
OWS's technology leadership is reflected in its extensive patent portfolio. The company holds 142 issued U.S. patents and 58 pending patent applications covering silicon-photonics device architectures, coherent transceiver designs, advanced packaging techniques, and thermal management innovations. The four patents asserted in this action are drawn from this broader portfolio and represent core innovations in waveguide multiplexing, coherent transceiver integration, micro-channel thermal management, and polarization-diverse grating coupling. OWS's technology leadership is widely recognized in the industry, as evidenced by numerous technical publications, conference presentations, and industry awards received by OWS's engineering team.
OWS's key competing products — the OWS-400ZR, OWS-800XR, and OWS-1600DR — are technically comparable or superior to Lumicore's accused products in independent benchmark testing. Third-party benchmark data, customer qualification test reports, and internal OWS engineering analyses all confirm that OWS's products meet or exceed the performance specifications of Lumicore's accused products in key parameters including insertion loss, optical signal-to-noise ratio ("OSNR") sensitivity, power consumption, and thermal stability. This technical parity is essential to the substitutability analysis and confirms that OWS's products are realistic "but for" alternatives for customers currently purchasing Lumicore's accused products.
The market's assessment of OWS's competitive value is further confirmed by the investment decision of Ridgeline Capital Partners, LP, which acquired a 55% stake in OWS in 2019 for $780 million. This valuation reflected Ridgeline's assessment of OWS's competitive position, technology portfolio, customer relationships, and growth trajectory in the silicon-photonics transceiver market. OWS's post-acquisition performance has validated that assessment, with the company achieving consistent revenue growth and margin improvement.
OWS's gross margin on competing products is 47.3%, per OWS's internal financial data produced in discovery. This margin reflects the premium pricing that OWS commands based on its technology leadership, product reliability, and established customer relationships. The 47.3% margin is the rate applied in the lost-profits calculation to convert displaced revenue into lost-profit dollars.
B. Lumicore's Market Entry and Growth
Lumicore Technologies, Inc. entered the silicon-photonics transceiver market as a well-funded, aggressive competitor following its initial public offering on Nasdaq in March 2022 at an offering price of $24 per share. As of the filing date of this action (April 22, 2024), Lumicore's stock was trading at approximately $37 per share, representing a market capitalization of approximately $3.4 billion based on 91.8 million shares outstanding. Lumicore's market valuation reflects the rapid revenue growth the company has achieved, driven overwhelmingly by sales of the accused products.
Lumicore's fiscal year 2023 revenue was $312.6 million, of which accused-product revenue accounted for $264.9 million — fully 84.7% of Lumicore's total revenue. The accused products are, by any measure, the engine of Lumicore's business. Each of the three accused products contributed substantially to Lumicore's growth:
• LumiLink 400G-ZR+ — launched Q3 2022; FY 2023 revenue: $94.8 million
• LumiLink 800G-DR8 — launched Q1 2023; FY 2023 revenue: $128.4 million
• LumiEdge 1600G-LR — launched Q4 2023; FY 2023 revenue: $41.7 million
Lumicore's rapid growth came directly at OWS's expense. At the 12 overlap customers, OWS's average market share declined from 52.8% to approximately 38.6% between Q3 2022 (when Lumicore launched the first accused product) and Q4 2023. This 14.2-percentage-point decline in OWS's share at overlap customers is temporally correlated with Lumicore's entry and growth, and the customer-level data confirms that Lumicore's gains at these customers correspond to OWS's losses. The share-decline data is presented in detail in Appendix C and will be a key exhibit in Dr. Keating's expert report.
C. Evidence of Customer Diversion
Beyond the aggregate market-share data, OWS has identified specific instances of competitive displacement at individual overlap customers that provide direct, granular evidence of customer diversion.
Karen Whitfield (OWS VP of Sales) has identified multiple instances in which OWS lost design-in opportunities and volume allocations to Lumicore's accused products at overlap customers. These instances include situations where OWS was the incumbent supplier and was displaced by Lumicore following the launch of an accused product, as well as situations where OWS was competing for new volume allocations and lost to Lumicore. Ms. Whitfield's account will be memorialized in customer-impact declarations, which are being prepared as a separate work product. The declarations will cover specific customer meetings, procurement competitions, design-in evaluations, and volume-allocation decisions at which Lumicore's accused products displaced or prevented OWS sales.
Deposition testimony provides further support for the customer-diversion narrative:
• Dr. Sandra Michaud (Lumicore Chief Technology Officer, deposed November 19, 2024) admitted under oath that Lumicore specifically targeted OWS's customer base as part of its go-to-market strategy. Dr. Michaud acknowledged that the LumiLink 400G-ZR+ was designed to be a "drop-in replacement" for incumbent transceiver modules, including OWS's OWS-400ZR. This testimony is directly relevant because it confirms that Lumicore's accused products were designed and marketed as substitutes for OWS's products and were sold into OWS's established customer relationships. Dr. Michaud's characterization of the LumiLink 400G-ZR+ as a "drop-in replacement" is a powerful admission of product substitutability — a key element of both the Panduit analysis and the displacement calculation.
• Angela Reeves (FairPoint Licensing Group, LLC, deposed December 10, 2024) testified that during the April 20, 2023 in-person licensing meeting in Austin, Texas, Lumicore's representatives "showed no interest in negotiating" a patent license. Ms. Reeves's testimony is relevant to the willful-infringement damages theory but also supports the displacement analysis by demonstrating that Lumicore was confident in its ability to maintain and grow market share using the accused products — even after being put on notice of OWS's patent rights.
D. Price Erosion
In addition to lost-volume displacement, OWS has suffered price erosion as a result of Lumicore's entry with accused products. Price erosion is a recognized component of patent infringement damages and represents the harm suffered on sales that OWS retained but was forced to make at lower prices due to the competitive pressure created by the infringing products.
The average selling price ("ASP") of 400G-ZR transceiver modules in the U.S. hyperscale market declined by 18.7% from Q3 2022 to Q4 2023. While some portion of this decline is attributable to normal market maturation and competitive dynamics, the magnitude and timing of the ASP decline are consistent with Lumicore's entry with the LumiLink 400G-ZR+ at aggressive price points. Lumicore's pricing strategy — offering the LumiLink 400G-ZR+ at a discount to incumbent products in order to win qualification slots and volume allocations — exerted downward pressure on ASPs across the 400G tier, affecting not only the sales OWS lost to Lumicore but also the sales OWS retained.
Price erosion affects the total quantum of damages in two ways. First, it reduces the revenue OWS earned on retained sales, creating an incremental damages claim beyond the lost-volume displacement. Second, it affects the calculation of displaced revenue by reducing the per-unit revenue base applicable to the displaced sales. A separate price-erosion analysis memorandum addresses this incremental harm in detail and will be incorporated into Dr. Keating's damages model as an additional component of the lost-profits claim. The price-erosion claim is additive to the $128.9 million in lost profits calculated from the 38.2% displacement rate and is not reflected in that figure.
VII. ACCOUNTING FOR NON-INFRINGING ALTERNATIVES
A. Panduit Factor 2: Absence of Acceptable Non-Infringing Substitutes
The Panduit framework for establishing entitlement to lost-profits damages requires, as its second factor, that the patent holder demonstrate the absence of acceptable non-infringing substitutes available to the infringer's customers. Panduit Corp. v. Stahlin Bros. Fibre Works, Inc., 575 F.2d 1152, 1156 (6th Cir. 1978). This factor is satisfied when no alternative product available in the market during the infringement period could serve as an adequate substitute for the accused products without incorporating the patented technology.
Four potential alternative products and suppliers have been analyzed and evaluated for their ability to serve as acceptable non-infringing substitutes for Lumicore's accused products at the 12 overlap customers. Each is discussed below.
1. Competitor X Product. Competitor X offers a silicon-photonics transceiver product line that competes in the 400G and 800G tiers. However, Competitor X's products lack the waveguide multiplexer architecture covered by the '847 Patent. Instead, Competitor X uses an older arrayed waveguide grating ("AWG") technology that exhibits higher insertion loss — approximately 2.5 dB greater than the waveguide multiplexer architecture practiced by both OWS and Lumicore. This higher insertion loss significantly limits the reach and power budget of Competitor X's products, making them unsuitable for many of the hyperscale interconnect applications served by OWS and Lumicore. Furthermore, Competitor X's products were not qualified at 8 of the 12 overlap customers during the relevant infringement period. Even at the 4 overlap customers where Competitor X held a qualification, its products were used in limited, secondary applications rather than as primary interconnect components. Competitor X therefore does not represent an acceptable non-infringing substitute.
2. Competitor Y Product. Competitor Y offers a transceiver product that operates in the 400G tier but does not incorporate the embedded micro-channel heat sinks covered by the '562 Patent. Competitor Y's products rely on conventional top-side heat-sink designs with lower thermal conductivity, resulting in thermal performance limitations that restrict the product to short-reach applications (typically less than 500 meters). Many hyperscale data-center interconnect use cases require reach capabilities of 2 km or more — well beyond Competitor Y's thermal-limited operating range. Because Competitor Y's product cannot serve the full range of applications addressed by Lumicore's accused products and OWS's competing products, it is not an acceptable substitute. Moreover, Competitor Y's limited reach capability means that customers requiring longer-reach performance would have been unable to use Competitor Y's product as a replacement for Lumicore's accused products, regardless of qualification status.
3. Competitor Z Product. Competitor Z offers a transceiver product that lacks the polarization-diverse grating coupler functionality covered by the '015 Patent. Competitor Z's products are limited to single-polarization operation, which reduces the achievable bandwidth density by approximately 50% compared to the dual-polarization operation enabled by OWS's and Lumicore's polarization-diverse grating coupler designs. In the 800G and 1600G tiers, this limitation is disqualifying: customers purchasing 800G-DR8 and 1600G-LR products require the full bandwidth density that dual-polarization operation provides. Competitor Z's product is not a viable substitute at the bandwidth tiers that account for the majority of Lumicore's accused-product revenue.
4. In-House Development by Hyperscale Operators. Only two of the top 20 hyperscale operators maintain internal transceiver development programs with the capability to design and manufacture silicon-photonics transceiver modules. Neither of these operators had a production-ready 400G-ZR or 800G-DR8 alternative during the infringement period. Both operators' internal programs remain in the research and development stage, with pilot production not expected before 2026 at the earliest. In-house development does not constitute an available non-infringing substitute during the relevant damages period.
Conclusion. No acceptable non-infringing substitute was available to the 12 overlap customers during the infringement period that would have provided the same combination of optical performance, thermal management capability, bandwidth density, form factor, and vendor-qualification status as Lumicore's accused products. The accused products' competitiveness — and their ability to serve as substitutes for OWS's products — derives directly from their incorporation of OWS's patented innovations: low-insertion-loss waveguide multiplexing (the '847 Patent), coherent transceiver integration (the '193 Patent), embedded micro-channel thermal management (the '562 Patent), and polarization-diverse grating coupling (the '015 Patent). Without these patented features, Lumicore would not have been able to offer products competitive with OWS's at the overlap customers, and OWS would have retained its pre-infringement market share.
B. Impact on Displacement Rate
The absence of acceptable non-infringing alternatives strengthens the displacement analysis and supports the reliability of the 38.2% figure. In a "but for" world where Lumicore did not use the patented technology, Lumicore would not have been able to offer a competitive product at the 12 overlap customers. The overlap customers' Lumicore volume would have been redistributed among the remaining qualified vendors — principally OWS — rather than diverted to a non-infringing alternative supplier.
The 38.2% displacement rate already conservatively accounts for the possibility that some portion of Lumicore's sales at non-overlap customers might have been absorbed by alternative suppliers or by reduced overall demand. Those sales — representing 27.6% of Lumicore's projected accused-product revenue — are excluded from the lost-profits model entirely and are instead allocated to the reasonable-royalty damages bucket. The Panduit Factor 2 analysis confirms that this allocation is appropriate and that the lost-profits claim at the overlap customers is well-founded.
VIII. RELATIONSHIP TO OTHER DAMAGES THEORIES
A. Integration with Reasonable Royalty
OWS's damages case employs a two-tiered structure: lost profits on the sales OWS would have made "but for" infringement, and a reasonable royalty on the remaining accused-product sales that do not qualify for lost-profits treatment. The 38.2% displacement rate is the mechanism that divides Lumicore's projected accused-product revenue between these two theories, ensuring that no sales are double-counted.
Sales that do not qualify for lost-profits treatment — specifically, Lumicore's sales to the 8 non-overlap customers, representing approximately $197.2 million of projected accused-product revenue (27.6% of the $714.6 million total) — are subject to a reasonable-royalty analysis under the Georgia-Pacific framework. Georgia-Pacific Corp. v. United States Plywood Corp., 318 F. Supp. 1116 (S.D.N.Y. 1970). Additionally, any portion of Lumicore's sales to overlap customers that is not captured by OWS in the displacement model (i.e., the non-OWS share of the overlap-customer volume, representing sales that would have gone to other qualified vendors rather than to OWS) is also subject to reasonable-royalty treatment.
The reasonable-royalty base is calculated as follows:
Total projected accused-product revenue: ~$714.6 million
Less: Displaced revenue captured by OWS (38.2% × $714.6M): ~$273.0 million
Reasonable-royalty revenue base: ~$441.6 million
Dr. Keating's proposed reasonable-royalty rate, derived from his Georgia-Pacific analysis, is 8.5% of accused-product net sales. Applying this rate to the reasonable-royalty revenue base yields:
$441.6 million × 8.5% = ~$37.5 million in reasonable-royalty damages
The 38.2% displacement figure ensures no double-counting between the lost-profits and reasonable-royalty theories. Every dollar of Lumicore's projected accused-product revenue is allocated exclusively to one theory or the other. The lost-profits theory captures the $273.0 million in displaced revenue (38.2% of total); the reasonable-royalty theory captures the remaining $441.6 million (61.8% of total). This clean division will be an important point in Dr. Keating's expert report and will need to be clearly communicated to the jury.
B. Integration with Enhanced Damages (Willful Infringement)
OWS's complaint asserts willful infringement and seeks enhanced damages under 35 U.S.C. § 284. The enhanced-damages analysis focuses on the period following Lumicore's receipt of notice of OWS's patent rights — specifically, from January 15, 2023 (the date of FairPoint Licensing Group's first licensing letter to Lumicore) through the projected trial date.
The post-notice lost-profits figure is approximately $109.2 million, representing the subset of the total $128.9 million in lost profits attributable to the post-notice period (January 15, 2023 through projected trial). The 38.2% displacement rate is applied consistently across both the pre-notice and post-notice periods; there is no adjustment to the displacement rate based on the timing of notice.
Enhanced-damages calculations under the willful-infringement theory apply a multiplier to the post-notice damages component. The specific multiplier and the resulting enhanced-damages figure are addressed in a separate willful-infringement damages scenario analysis memorandum in the matter file.
C. Aggregate Damages Demand
The total damages demand, incorporating all three theories, is summarized as follows:
The total demand as pled in the complaint is approximately $210.0 million, representing a blended view incorporating plaintiff's assessment of all three theories. This figure is subject to refinement as discovery progresses and as Dr. Keating finalizes his expert report. The $210.0 million figure should be understood as a litigation target that incorporates conservative and aggressive assumptions across the various damages components; the expected trial damages range is approximately $165 million to $210 million, depending on the Court's rulings on Daubert challenges and the jury's receptiveness to the various damages theories.
IX. ANTICIPATED CHALLENGES AND REBUTTAL POINTS
A. Lumicore's Likely Arguments Against the 38.2% Figure
Based on prior experience with Lumicore's counsel (Hughes & Blackwell LLP) and the typical defense strategies employed in patent cases involving market-share displacement, we anticipate the following challenges to the 38.2% displacement rate. Each anticipated argument is set forth below, together with the recommended rebuttal.
1. Overstatement of Overlap. Lumicore may argue that OWS's vendor-qualification status at certain overlap customers was limited or conditional during portions of the infringement period — for example, that OWS's qualification was limited to a specific product tier or was subject to requalification requirements that were not satisfied. Such an argument would seek to reduce the number of overlap customers from 12 to a smaller number, thereby reducing the overlap revenue share below 72.4% and, consequently, reducing the displacement rate below 38.2%.
Rebuttal: OWS's vendor-qualification records, which have been produced in discovery and cross-referenced with customer correspondence and procurement documents, demonstrate that OWS held active, unconditional vendor qualifications at all 12 overlap customers for the relevant product tiers throughout the infringement period. There is no basis in the evidentiary record for reducing the overlap count below 12. To the extent Lumicore argues that OWS's qualification at one or two customers was "conditional" or "probationary," the underlying documentation shows that OWS was actively shipping product to those customers and receiving purchase orders, which is inconsistent with any claim that OWS was not a fully qualified vendor.
2. Understat