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CALDERWOOD & HARKNESS LLP

PRICE EROSION ANALYSIS 400G-ZR Transceiver Market

Optiwave Semiconductor Corp. v. Lumicore Technologies, Inc. Case No. 2:24-cv-00319-JRG (E.D. Tex.)

January 2025

Prepared by: Omar Siddiqui, Associate, Calderwood & Harkness LLP

Reviewed by: Wendy Schultz, Lead Associate, Calderwood & Harkness LLP; Alan Ngo, Partner, Calderwood & Harkness LLP

Matter: Optiwave Semiconductor Corp. v. Lumicore Technologies, Inc., Case No. 2:24-cv-00319-JRG (E.D. Tex.)

Privileged: Attorney Work Product / Attorney-Client Privileged Communication — Prepared in Anticipation of Litigation

Confidentiality: This document contains information designated "Highly Confidential — Attorneys' Eyes Only" under the Stipulated Protective Order entered August 19, 2024. Distribution is limited to attorneys of record and authorized in-house counsel as specified in the Protective Order. This document may not be disclosed to any person not authorized under the Protective Order without prior written consent of counsel or further order of the Court.

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I. Executive Summary

This memorandum presents a detailed price erosion analysis quantifying the decline in average selling prices ("ASPs") experienced by Optiwave Semiconductor Corp. ("OWS") in the 400G-ZR coherent optical transceiver market attributable to the market entry of Lumicore Technologies, Inc. ("Lumicore") with the accused LumiLink 400G-ZR+ product beginning in Q3 2022. The purpose of this analysis is to support the damages case in Optiwave Semiconductor Corp. v. Lumicore Technologies, Inc., Case No. 2:24-cv-00319-JRG, pending before Judge James R. Gilstrap in the Eastern District of Texas, with trial currently set for February 2, 2026.

Key Finding. Average selling prices for 400G-ZR-class coherent optical transceivers declined approximately 18.7% from Q3 2022 to Q4 2023, a period coinciding precisely with Lumicore's launch and subsequent ramp of the LumiLink 400G-ZR+ module. After controlling for normal, secular industry price decline trends — which historical analysis and industry data indicate would account for approximately 5–8% over the same period — the excess price erosion attributable to Lumicore's entry with infringing products is approximately 10.7 to 13.7 percentage points. This excess erosion represents a distinct and measurable category of economic harm caused by Lumicore's infringement of OWS's patented technology.

Significance for Damages. Price erosion provides an incremental and additive category of harm beyond lost unit-volume analysis under the Panduit Corp. v. Stahlin Bros. Fibre Works, Inc., 575 F.2d 1152 (6th Cir. 1978), lost-profits framework. Even on sales that OWS retained during the measurement period, OWS was forced to reduce pricing in response to competitive pressure from the LumiLink 400G-ZR+, resulting in lower margins and reduced profitability on those retained sales. This analysis supports the damages model being developed by Dr. Lawrence Keating of Meridian Economic Consulting Group, LLC, OWS's retained damages expert, by demonstrating that the harm caused by Lumicore's infringement extends beyond mere lost sales volumes to encompass margin compression on OWS's entire book of 400G-ZR business.

This price erosion analysis supplements and integrates with the following previously completed work product prepared by the litigation team:

• Market-Share Displacement Analysis (June 2024): Establishing a 38.2% displacement figure — that is, OWS would have captured approximately 38.2% of the sales actually made by Lumicore but for Lumicore's infringing entry.

• Panduit Factor Analysis (May 2024): Confirming that OWS satisfies all four Panduit factors for recovery of lost profits, including a demonstrated 47.3% gross margin on competing products.

• Comparable License Analysis (July 2024): Identifying five comparable licenses supporting an 8.5% reasonable royalty rate under the Georgia-Pacific fifteen-factor framework.

• Damages Theory Strategy Memorandum (April 2024): Setting forth the overall three-pronged damages framework (lost profits, reasonable royalty, and enhanced damages for willful infringement).

Total Damages Demand. OWS's total damages demand in this action is approximately $210 million, a blended and rounded figure incorporating lost profits (approximately $128.9 million under the Panduit framework), a reasonable royalty (approximately $37.5 million at an 8.5% rate on non-lost-profit sales under the Georgia-Pacific analysis), and enhanced damages for willful infringement (approximately $43.6 million). The price erosion analysis presented herein is subsumed within and supports the lost-profits component of this demand by demonstrating the full scope of economic harm caused by Lumicore's infringing conduct.

II. Scope and Methodology

A. Products Analyzed

This analysis focuses on two primary products that compete directly in the 400G-ZR coherent optical transceiver market:

OWS's Competing Product: OWS-400ZR Transceiver Module. The OWS-400ZR is OWS's flagship 400G-ZR coherent optical transceiver module, designed for deployment in hyperscale data-center interconnect applications. The OWS-400ZR is part of OWS's key product family, which also includes the OWS-800XR (an 800G next-generation module) and the OWS-1600DR (a 1.6T ultra-high-bandwidth module currently in qualification). OWS sells the OWS-400ZR to hyperscale data-center operators, cloud service providers, and major telecommunications companies. The OWS-400ZR practices one or more claims of each of the three asserted patents in this litigation: the '847 Patent (waveguide multiplexer structures), the '193 Patent (coherent signal processing architecture), and the '562 Patent (thermal management micro-channel heat sinks). OWS is the third-largest U.S. supplier of silicon-photonics transceiver modules for hyperscale data centers, with a portfolio of 142 issued U.S. patents and 58 pending patent applications reinforcing its technology differentiation in the market.

Lumicore's Accused Product: LumiLink 400G-ZR+. The LumiLink 400G-ZR+ is the primary accused product at issue in this analysis. Lumicore launched the LumiLink 400G-ZR+ in Q3 2022, following Lumicore's Nasdaq IPO in March 2022. The LumiLink 400G-ZR+ is accused of infringing the following patents:

• U.S. Patent No. 10,234,847 (the "'847 Patent"): Directed to waveguide multiplexer structures for coherent optical transceivers.

• U.S. Patent No. 10,891,193 (the "'193 Patent"): Directed to coherent signal processing architectures for high-bandwidth optical modules.

• U.S. Patent No. 9,678,562 (the "'562 Patent"): Directed to thermal management micro-channel heat sink designs for photonics modules; originally assigned to Solara Optics, Inc. and acquired by OWS via an asset purchase agreement dated June 15, 2018, for $34.5 million.

Per Lumicore's segment disclosures produced in discovery, the LumiLink 400G-ZR+ generated $94.8 million in revenue during fiscal year 2023. Lumicore's total accused-product portfolio also includes two additional products — the LumiLink 800G-DR8 (launched Q1 2023; FY 2023 revenue of $128.4 million) and the LumiEdge 1600G-LR (launched Q4 2023; FY 2023 revenue of $41.7 million) — which, while not the primary focus of this analysis, contribute to the overall competitive and pricing pressure exerted on OWS and are addressed where relevant.

B. Time Period

The analysis spans three distinct periods:

Pre-Entry Baseline Period: Q1 2022 through Q2 2022. This period precedes the launch of the LumiLink 400G-ZR+ and establishes the baseline pricing environment for the OWS-400ZR in the absence of Lumicore's competitive entry. During this period, the OWS-400ZR had established market positioning as a leading 400G-ZR module, and pricing was relatively stable, declining only in accordance with normal industry trends.

Post-Entry Measurement Period: Q3 2022 through Q4 2023. This period begins with the launch of the LumiLink 400G-ZR+ in Q3 2022 and extends through Q4 2023, encompassing the six-quarter period during which the most pronounced price erosion was observed. This period includes the launches of Lumicore's two additional accused products (LumiLink 800G-DR8 in Q1 2023 and LumiEdge 1600G-LR in Q4 2023), each of which contributed to intensifying competitive pressure.

Extended Forward Projection Period: Q1 2024 through Q4 2025. This period extends the analysis forward through the projected trial date of February 2, 2026, allowing for the estimation of ongoing price erosion damages through the date of trial. Projections for this period are based on forward-looking ASP assumptions derived from trend analysis and Dr. Keating's preliminary damages model.

C. Data Sources

The analysis relies upon the following categories of data, each of which has been produced or is available in the record of this litigation:

OWS Internal Financial Records (Discovery Production). OWS's quarterly ASP data for the OWS-400ZR module, broken down by customer, by volume tier, and by geography, has been produced in discovery and forms the foundation of the pricing analysis. These records include transaction-level data for each quarter from Q1 2022 through Q4 2023, enabling granular analysis of pricing trends at both the aggregate and customer-specific levels. OWS's FY 2023 total revenue was $487.3 million (per audited financial statements prepared by Gresham & Whitfield LLP), of which approximately $310 million is attributable to products practicing one or more claims of the asserted patents. OWS's FY 2023 net income was $61.4 million. OWS's gross margin on competing products was 47.3% (per OWS internal financial records produced in discovery).

Lumicore Product-Level Financial Data (AEO discovery Production). Lumicore's product-level financial data for the LumiLink 400G-ZR+ (and the other accused products) has been produced in discovery under the "Highly Confidential — Attorneys' Eyes Only" designation pursuant to the Stipulated Protective Order entered August 19, 2024. This data includes ASPs, gross margins, and customer-by-customer revenue breakdowns. Key data points include: LumiLink 400G-ZR+ FY 2023 revenue of $94.8 million; LumiLink 400G-ZR+ gross margin of 52.1%; and quarterly ASP trajectories for each accused product. Lumicore's overall FY 2023 revenue is estimated at $312.6 million, of which $264.9 million is attributable to the three accused products ($94.8M + $128.4M + $41.7M).

Third-Party Market Data. Industry reports on 400G-ZR transceiver pricing trends from publicly available semiconductor-industry analyst reports have been used to contextualize and validate the pricing trends observed in OWS's and Lumicore's internal data. These reports provide independent confirmation of the acceleration in price declines following Lumicore's market entry and establish the baseline for normal, secular price decline expectations.

Benchmark Semiconductor Analysis, LLC Teardown Report. The teardown report dated December 12, 2022, prepared by Lead Engineer Kevin Ng of Benchmark Semiconductor Analysis, LLC, confirmed the presence of OWS's patented waveguide multiplexer structures and thermal management micro-channel heat sinks in the LumiLink 400G-ZR+ module. This report is relevant to causal attribution, as it establishes that Lumicore's ability to offer competitive pricing was enabled by its use of OWS's patented technology.

D. Analytical Framework

The analysis employs a four-part analytical framework designed to isolate and quantify the price erosion attributable to Lumicore's infringing entry:

Step 1: Before-and-After Comparison. The analysis begins with a direct comparison of OWS-400ZR ASPs before Lumicore's entry (Q1–Q2 2022) and after Lumicore's entry (Q3 2022–Q4 2023). This comparison establishes the total magnitude of the observed price decline.

Step 2: Isolation of Infringing-Entry Effect. The analysis then isolates the portion of the price decline attributable to Lumicore's competitive pressure, as distinguished from secular industry trends. Secular trends include normal technology-generation price declines (driven by manufacturing maturity and yield improvements), volume-scaling effects (as aggregate market demand for 400G-ZR modules increased), and contractual renegotiations (routine annual price adjustments embedded in long-term supply agreements). Historical data from prior-generation transceiver products (100G, 200G) is used to establish the expected rate of secular price decline.

Step 3: Regression Analysis. A multivariate regression analysis controlling for volume, customer mix, product maturity, and broader macroeconomic factors (including supply-chain disruptions, component cost fluctuations, and demand volatility) is used to test and refine the before-and-after comparison. The regression is designed to ensure that the estimated excess price erosion attributable to Lumicore's entry is not confounded by other variables.

Step 4: Counterfactual ("But For") Pricing Model. Finally, a counterfactual pricing model is constructed to estimate the price trajectory OWS would have experienced absent Lumicore's infringing entry. This model projects OWS-400ZR ASPs forward from the pre-entry baseline, applying the expected normal price decline trajectory, and compares the resulting "but for" prices to the actual prices observed in each quarter. The difference between "but for" revenue and actual revenue on retained sales constitutes the price erosion damages.

This framework is consistent with established methodologies for price erosion analysis in patent damages cases and is aligned with the approach employed by Dr. Keating in his preliminary damages model.

III. Pre-Entry Pricing Baseline (Q1 2022 – Q2 2022)

A. OWS-400ZR ASP Levels

In order to measure the price erosion caused by Lumicore's infringing entry, it is first necessary to establish a reliable baseline for OWS-400ZR ASPs in the period immediately preceding the launch of the LumiLink 400G-ZR+.

At the beginning of Q1 2022, the average selling price for the OWS-400ZR transceiver module, across all customers and volume tiers, was approximately $1,285 per unit (based on OWS's internal financial records). This figure reflects a weighted average across OWS's customer base, encompassing both higher-priced low-volume orders (typically from Tier 2 and Tier 3 data-center operators) and lower-priced high-volume orders (typically from top-tier hyperscale customers with negotiated volume discount schedules).

During Q1 2022, the OWS-400ZR ASP declined modestly to approximately $1,268 per unit, reflecting normal quarterly fluctuations in customer mix and the effect of a scheduled annual price adjustment with one major hyperscale account. In Q2 2022, the ASP further declined to approximately $1,251 per unit, consistent with a gradual, orderly price decline trajectory typical of a mature but still-differentiated product. The Q2 2022 figure of $1,251 per unit serves as the immediate pre-entry baseline against which post-entry price declines are measured.

Over the two-quarter pre-entry baseline period, the OWS-400ZR ASP declined by approximately 2.6% (from $1,285 to $1,251), which annualizes to approximately 5.2%. This rate of decline is consistent with the expected normal price decline trajectory described in Section III.C below and confirms that pricing was on a stable, predictable course prior to Lumicore's entry.

B. Competitive Landscape Before Lumicore's Entry

Prior to Q3 2022, the 400G-ZR coherent optical transceiver market was characterized by a limited number of suppliers with comparable silicon-photonics integration capabilities. The market was effectively supplied by three major U.S.-based and international incumbents, of which OWS was one, along with a small number of niche and regional players with limited market penetration.

OWS competed primarily with two other major incumbents in the 400G-ZR space. Neither of these incumbents had introduced a product with the specific combination of performance characteristics offered by OWS's patented waveguide multiplexer and thermal management technologies, and OWS's differentiation on these dimensions supported its ability to command a pricing premium. Lumicore, which had been primarily focused on lower-bandwidth transceiver products prior to its March 2022 IPO, had not yet launched a competing 400G-ZR product and was not a factor in the 400G-ZR competitive landscape.

Customer procurement patterns during the pre-entry period showed limited downward pressure on pricing beyond normal contract renewal adjustments. Discounts were primarily tied to volume tiers rather than competitive bidding dynamics, and OWS's established relationships with hyperscale customers provided a degree of pricing stability. While OWS did occasionally face competitive pressure from the other two major incumbents, this pressure was relatively stable and predictable, and it did not produce the type of sudden, accelerating price decline that occurred after Lumicore's entry.

C. Normal Price Decline Trajectory

In order to distinguish between price declines attributable to Lumicore's entry and price declines that would have occurred in the normal course, the analysis establishes an expected rate of normal, secular price decline for the OWS-400ZR.

Historical analysis of prior-generation transceiver products provides a reliable basis for this estimate. Specifically:

• 100G QSFP28 Transceivers: During the mature phase of the 100G product cycle (approximately 2016–2019), ASPs declined at an annualized rate of approximately 6–8% per year, driven by manufacturing yield improvements, component cost reductions, and increasing competitive supply.

• 200G QSFP56 Transceivers: During the mature phase of the 200G product cycle (approximately 2019–2022), ASPs declined at an annualized rate of approximately 5–7% per year, reflecting similar dynamics.

Based on this historical data, and corroborated by publicly available semiconductor-industry analyst reports projecting 400G-ZR price trends, the expected normal price decline for the OWS-400ZR during the post-entry measurement period (Q3 2022 through Q4 2023) was approximately 5–8% over the full six-quarter period, or approximately 3.3–5.3% annualized. This represents the rate of price decline OWS would have experienced in the "but for" world absent Lumicore's infringing entry, and it serves as the foundation for the counterfactual pricing model described in Section VII.

It is important to note that the pre-entry ASP decline of approximately 2.6% over two quarters (annualized at approximately 5.2%) falls squarely within the expected range of 5–8% annualized, confirming the validity of this baseline.

IV. Post-Entry Price Decline Analysis (Q3 2022 – Q4 2023)

A. Lumicore's Market Entry and Pricing Strategy

Lumicore launched the LumiLink 400G-ZR+ in Q3 2022, approximately five months after its Nasdaq IPO in March 2022. Lumicore's IPO price was $24 per share; at the time of the filing of the complaint in this action on 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 post-IPO growth trajectory has been substantially driven by the success of its accused product line, which generated $264.9 million in FY 2023 revenue — representing approximately 84.7% of Lumicore's total estimated FY 2023 revenue of $312.6 million.

Evidence obtained through discovery — including internal Lumicore marketing plans, sales strategy presentations, and executive communications — reveals that Lumicore adopted an aggressive pricing strategy designed to rapidly capture market share from incumbent suppliers, including OWS. Internal Lumicore documents describe a "land and expand" strategy in which the LumiLink 400G-ZR+ was priced at levels intended to undercut incumbents' pricing by a sufficient margin to win initial design-in opportunities at target hyperscale accounts, with the expectation that subsequent product generations (the 800G-DR8 and 1600G-LR) would follow. One internal Lumicore sales strategy document, dated April 2022, identified OWS by name as a "primary displacement target" and set specific pricing benchmarks designed to undercut OWS's pricing at identified accounts.

Critically, Lumicore's ability to execute this aggressive pricing strategy while maintaining healthy margins was enabled by its infringing use of OWS's patented technology. The LumiLink 400G-ZR+ achieved a gross margin of 52.1% (per Lumicore's financial data produced under AEO designation), indicating that even at its discounted pricing levels, Lumicore earned margins that exceeded OWS's own 47.3% gross margin on competing products. This margin profile was made possible by the performance and manufacturing-cost advantages conferred by OWS's patented waveguide multiplexer structures ('847 Patent) and thermal management micro-channel heat sinks ('562 Patent), as confirmed by the Benchmark Semiconductor Analysis, LLC teardown report dated December 12, 2022, prepared by Lead Engineer Kevin Ng. The teardown identified specific structural and design elements in the LumiLink 400G-ZR+ that correspond to the claimed inventions of the '847 and '562 Patents, establishing a direct link between Lumicore's use of patented technology and its ability to achieve competitive pricing.

B. Quarterly ASP Trajectory for OWS-400ZR

The following table summarizes the quarter-by-quarter ASP trajectory for the OWS-400ZR from Q2 2022 (the immediate pre-entry baseline) through Q4 2023:

Q3 2022. The initial quarter of Lumicore's entry saw an immediate and pronounced acceleration in OWS-400ZR ASP decline. The quarter-over-quarter decline of 3.4% was substantially greater than the approximately 1.3% quarterly decline observed during the pre-entry baseline period. This acceleration coincided directly with the launch of the LumiLink 400G-ZR+ and the first competitive bids from Lumicore at overlapping accounts.

Q4 2022. The rate of decline accelerated further in Q4 2022, with a 4.2% quarter-over-quarter drop, as Lumicore won its initial design-in opportunities at several major hyperscale accounts. OWS's internal sales records from this period show multiple instances of price concessions granted by OWS sales teams in response to specific Lumicore competitive bids, as discussed in Section V below.

Q1 2023. The decline continued at a 3.9% quarterly rate, coinciding with Lumicore's launch of the LumiLink 800G-DR8 in Q1 2023. Although the 800G-DR8 operates in a different bandwidth segment (800G vs. 400G), its launch created additional competitive pressure across Lumicore's and OWS's overlapping product lines. The 800G-DR8 generated $128.4 million in FY 2023 revenue, further establishing Lumicore as a broad-based competitive threat and giving Lumicore additional leverage in multi-product procurement negotiations with hyperscale customers.

Q2 2023. Price erosion continued at a 3.1% quarterly rate as Lumicore expanded its customer base beyond initial design-in accounts. By this point, Lumicore had established relationships with a significant number of the top-tier hyperscale data-center operators, and competitive dynamics had shifted decisively. OWS was increasingly forced to compete on price rather than differentiation alone.

Q3 2023. Pricing remained at sustained lower levels, with a 2.8% quarterly decline indicating that while the rate of acceleration had moderated slightly, the overall downward trajectory remained firmly in place. The cumulative decline from Q2 2022 had reached 16.2%.

Q4 2023. The OWS-400ZR ASP reached the nadir of the measurement period at approximately $1,017 per unit, representing a cumulative decline of 18.7% from the Q2 2022 baseline of $1,251 per unit. This quarter coincided with Lumicore's launch of the LumiEdge 1600G-LR (FY 2023 revenue of $41.7 million), which further broadened competitive pressure across the transceiver product spectrum. Total accused-product revenue for FY 2023 across all three accused products was $264.9 million ($94.8M + $128.4M + $41.7M).

C. Comparison to Expected "But For" Price Decline

As established in Section III.C, the expected normal price decline for the OWS-400ZR over the six-quarter post-entry measurement period (Q3 2022 through Q4 2023) was approximately 5–8%, based on historical patterns for prior-generation products and corroborated by industry analyst projections. Had pricing followed this normal trajectory, the OWS-400ZR ASP at the end of Q4 2023 would have been in the range of approximately $1,151 to $1,188 per unit (applying a 5–8% decline to the Q2 2022 baseline of $1,251).

The actual decline of 18.7% — to $1,017 per unit — substantially exceeds this expected range. The excess price erosion attributable to Lumicore's entry is therefore approximately 10.7 to 13.7 percentage points (i.e., the 18.7% actual decline minus the 5–8% expected normal decline). In absolute dollar terms, this translates to an excess per-unit ASP decline of approximately $134 to $171 per unit (the difference between the "but for" ASP range of $1,151–$1,188 and the actual Q4 2023 ASP of $1,017).

This excess decline is directly traceable to Lumicore's competitive impact in the market using OWS's patented technology. The regression analysis described in Section II.D confirms this conclusion after controlling for volume effects, customer mix shifts, product maturity, and macroeconomic variables. The temporal correlation is striking: the acceleration in price decline began precisely in Q3 2022 — the quarter of LumiLink 400G-ZR+ launch — and intensified with each subsequent Lumicore product launch.

V. Customer-Level Analysis of Price Erosion

A. Head-to-Head Competition at Overlapping Accounts

The aggregate ASP decline documented in Section IV is corroborated by granular, customer-level analysis of pricing dynamics at accounts where OWS and Lumicore compete directly. Per the market-share displacement analysis completed in June 2024, OWS and Lumicore compete head-to-head at 12 of the top 20 hyperscale data-center operators in the United States and internationally. These 12 overlapping accounts represent the locus of competitive interaction where Lumicore's pricing pressure is most directly felt and where OWS's price concessions have been most pronounced.

The following examples illustrate the pattern of price erosion at specific overlapping accounts. Customer names are presented using code designations consistent with the confidentiality provisions of the Stipulated Protective Order:

Customer Alpha. Customer Alpha is one of the five largest hyperscale data-center operators globally and was a long-standing OWS-400ZR customer. In Q3 2022, following the LumiLink 400G-ZR+ launch, Lumicore submitted a competitive bid to Customer Alpha that undercut OWS's then-current pricing by approximately 12%. OWS's regional sales team, in coordination with OWS VP of Sales Karen Whitfield, authorized a price reduction of approximately 9% to retain the design-in position. Internal OWS communications from October 2022 explicitly reference the Lumicore bid as the reason for the price concession. Despite the concession, Lumicore won approximately 30% of the volume allocation at Customer Alpha in Q1 2023.

Customer Beta. Customer Beta is a major North American cloud service provider. In Q4 2022, OWS learned through its customer contacts that Lumicore had offered the LumiLink 400G-ZR+ at a price approximately 15% below OWS's current contracted rate. OWS's sales records show that OWS reduced its pricing by approximately 11% at Customer Beta's next quarterly order cycle to prevent full displacement. OWS retained the account but at substantially reduced margins.

Customer Gamma. Customer Gamma is a Tier 1 telecommunications operator with significant data-center interconnect deployments. OWS sales records show that Customer Gamma began requesting competitive bids from Lumicore in Q1 2023 and used Lumicore's pricing as leverage to renegotiate its existing OWS supply agreement. OWS ultimately agreed to a 7% price reduction effective Q2 2023.

Customer Delta. Customer Delta is a hyperscale operator that awarded a new design-in to Lumicore in Q3 2022 after Lumicore offered pricing approximately 18% below OWS's quoted price. OWS lost this design-in entirely and was not able to recapture the volume, even at reduced pricing. This loss is captured in the unit-volume lost-profits analysis rather than the price erosion analysis, but it illustrates the competitive dynamics driving price erosion at other accounts: OWS's awareness of losses like Customer Delta motivated preemptive price concessions at other accounts.

Customer Epsilon. Customer Epsilon is an international hyperscale operator with procurement operations in multiple geographies. OWS's records show that in Q2 2023, Customer Epsilon presented OWS with a Lumicore quote as part of its annual procurement review and demanded a price reduction of 14% to maintain OWS as its primary supplier. OWS negotiated the reduction down to 10% but was forced to accept terms significantly below its pre-entry pricing.

Across these five illustrative accounts, the pattern is consistent: Lumicore's competitive bids directly triggered OWS price concessions that would not have occurred absent Lumicore's entry with the infringing LumiLink 400G-ZR+ product. The customer-level data confirms that the aggregate 18.7% ASP decline is driven by specific, identifiable competitive interactions rather than diffuse, unattributable market forces.

B. Customers in the Eastern District of Texas

In addition to the overlapping accounts described above, the customer-level analysis is relevant to establishing the connection between Lumicore's infringing sales and the Eastern District of Texas. Lumicore sold accused products — including the LumiLink 400G-ZR+ — to at least three customers with facilities located within the Eastern District of Texas:

• Pinnacle Data Systems, LLC, located at 1800 Judson Road, Longview, Texas 75601.

• Frontier Cloud Services, Inc., located at 400 East Houston Street, marshall, Texas 75670.

• CrossPoint Networking Corp., located at 7500 Dallas Parkway, Suite 200, Plano, Texas 75024 (transferred to Tyler Division for case management).

Price competition at these accounts contributed to overall ASP decline for OWS, and OWS's sales records show price concessions at these accounts that are consistent with the broader pattern of Lumicore-driven price erosion documented in this analysis.

C. Design-In Displacement Effects

The price erosion and design-in displacement effects documented in this analysis and in the market-share displacement analysis are closely interrelated and mutually reinforcing. When Lumicore won a design-in at a particular account (as occurred at Customer Delta and partially at Customer Alpha), the effect was not limited to the lost volume at that account. Rather, each design-in loss signaled to OWS and to other customers that Lumicore was a viable, competitive alternative to OWS in the 400G-ZR market. This had two cascading effects:

First, OWS was forced to lower prices preemptively at other accounts to prevent further displacement. OWS's internal sales strategy documents from late 2022 and early 2023 show a deliberate decision to "hold the line" on key accounts by offering pricing concessions, even at the cost of reduced margins, in order to prevent a broader erosion of OWS's installed base and market position.

Second, customers gained additional negotiating leverage as Lumicore's market presence expanded. Even customers that had no intention of switching to Lumicore used the availability of the LumiLink 400G-ZR+ as a bargaining chip in price negotiations with OWS, extracting concessions that would not have been possible in the absence of a competitive Lumicore product.

This interrelationship between unit-volume losses and price erosion is precisely why price erosion must be analyzed as a distinct and additive category of harm: the Panduit lost-profits analysis captures the harm from lost sales, but it does not capture the margin compression on retained sales that results from the competitive dynamics described here. Customer impact declarations being prepared by OWS VP of Sales Karen Whitfield and OWS's regional sales directors will provide additional supporting testimony for these dynamics at trial.

VI. Causal Attribution: Lumicore's Infringing Products as the Driver

A. Temporal Correlation

The temporal correlation between Lumicore's market entry and the acceleration in OWS-400ZR price declines is among the strongest pieces of evidence supporting causal attribution. The data demonstrates the following pattern:

• Pre-entry (Q1–Q2 2022): OWS-400ZR ASPs declined at a stable, moderate rate of approximately 1.3% per quarter, consistent with normal industry trends and the historical decline rates for prior-generation products.

• Q3 2022 (LumiLink 400G-ZR+ launch): The rate of ASP decline approximately tripled, from 1.3% per quarter to 3.4% in Q3 2022, coinciding precisely with the commercial launch of the LumiLink 400G-ZR+.

• Q4 2022: The rate of decline accelerated further to 4.2% per quarter as Lumicore won initial design-in opportunities and OWS responded with price concessions.

• Q1 2023 (LumiLink 800G-DR8 launch): The rate of decline remained elevated at 3.9% per quarter, coinciding with Lumicore's launch of its second accused product, the LumiLink 800G-DR8, which broadened Lumicore's competitive footprint.

• Q4 2023 (LumiEdge 1600G-LR launch): The cumulative decline reached 18.7%, with the final quarter of the measurement period coinciding with Lumicore's launch of its third accused product, the LumiEdge 1600G-LR.

There was no comparable acceleration in price declines in the quarters preceding Lumicore's entry. No other market event occurring in Q3 2022 accounts for the sudden shift in pricing dynamics. The correlation between Lumicore's product launches and inflection points in OWS's ASP trajectory is both temporally precise and economically significant.

B. Lumicore's Use of Patented Technology Enabled Competitive Pricing

The causal link between Lumicore's infringing conduct and OWS's price erosion is not merely temporal — it is technological and economic. Lumicore's ability to offer the LumiLink 400G-ZR+ at aggressively competitive prices while maintaining a 52.1% gross margin was directly enabled by its use of OWS's patented technology.

The Benchmark Semiconductor Analysis, LLC teardown report, dated December 12, 2022 and prepared by Lead Engineer Kevin Ng, confirmed that the LumiLink 400G-ZR+ incorporates:

• Waveguide multiplexer structures corresponding to the claims of the '847 Patent, which enable efficient optical signal combining and splitting within a compact form factor, reducing die size and manufacturing cost while improving optical performance.

• Thermal management micro-channel heat sinks corresponding to the claims of the '562 Patent (originally assigned to Solara Optics, Inc. and acquired by OWS via asset purchase agreement dated June 15, 2018, for $34.5 million), which enable superior heat dissipation in high-power coherent optical modules, improving reliability and enabling higher-density packaging.

These patented features provide both performance and cost advantages. The waveguide multiplexer structures reduce silicon die area requirements by an estimated 15–20%, directly lowering per-unit manufacturing costs. The thermal management micro-channels enable higher operating power densities without the need for more expensive active cooling solutions, further reducing bill-of-materials cost. Together, these technologies allowed Lumicore to offer a product that matched or exceeded OWS's performance specifications at a lower price point — while still earning margins above 50%.

But for the use of OWS's patented technology, Lumicore would not have been able to achieve the performance and cost profile that supported its aggressive pricing strategy. Without the patented waveguide multiplexer structures, Lumicore would have been forced to use less efficient optical architectures that consume more die area and increase manufacturing cost. Without the patented thermal management micro-channels, Lumicore would have been required to use costlier or bulkier cooling solutions that would have increased module cost and potentially compromised form-factor compatibility. In either case, Lumicore's ability to undercut OWS's pricing would have been substantially diminished, and the observed price erosion would not have occurred.

C. Absence of Non-Infringing Alternatives

The causal analysis is further supported by the absence of viable non-infringing alternatives. The Panduit factor analysis completed in May 2024 evaluated four potential non-infringing alternative designs that Lumicore could theoretically have adopted for the LumiLink 400G-ZR+:

1. Planar lightwave circuit (PLC) multiplexer architecture: Found to lack the integrated, monolithic waveguide structure claimed in the '847 Patent, resulting in larger module size, lower optical efficiency, and higher manufacturing cost.

2. Discrete bulk-optics multiplexer design: Found to be incompatible with the QSFP-DD form factor required by hyperscale customers, rendering it commercially non-viable.

3. External heat-sink assembly (non-micro-channel): Found to lack the thermal performance required to support the 400G-ZR+ operating power envelope without derating optical output, resulting in inferior performance relative to OWS's OWS-400ZR.

4. Hybrid micro-channel design with modified channel geometry: Found to infringe at least claims 1, 5, and 12 of the '562 Patent under the doctrine of equivalents, as confirmed by OWS's technical expert.

Each of the four evaluated alternatives was found to lack one or more key patented features necessary to achieve performance, form factor, and cost parity with the OWS-400ZR. This supports the conclusion that Lumicore's price competitiveness was enabled specifically by its infringing use of OWS's technology, not by independent innovation or the use of non-infringing alternatives.

D. Deposition Testimony

Deposition testimony obtained in this litigation further supports the causal attribution of price erosion to Lumicore's infringing use of OWS's technology.

Dr. Sandra Michaud, Lumicore CTO (Deposed November 19, 2024). During her deposition, Dr. Michaud admitted that Lumicore's engineering team reviewed OWS's published patent application No. 2018/0123456 — which corresponds to the '193 Patent (U.S. Patent No. 10,891,193) — during the design phase of the LumiLink 400G-ZR+. Specifically, Dr. Michaud testified that the published application was among the technical literature reviewed by Lumicore's optical design group and that certain design concepts described in the application were "considered" in the context of the LumiLink 400G-ZR+ development program. This admission establishes that Lumicore had actual knowledge of OWS's patented technology during the design phase and supports the inference that Lumicore intentionally adopted OWS's innovations to achieve the competitive performance and pricing profile that drove price erosion.

Raymond Bautista, Lumicore General Counsel (Deposed December 3, 2024). Mr. Bautista confirmed during his deposition that no formal design-around analysis was commissioned by Lumicore before the launch of the LumiEdge 1600G-LR in Q4 2023 — despite the fact that Lumicore had received two notice letters from FairPoint Licensing Group, LLC (dated January 15, 2023, and May 15, 2023) identifying the asserted patents and accusing specific Lumicore products of infringement. Mr. Bautista's testimony establishes that Lumicore proceeded with the launch of a third accused product without taking any steps to design around OWS's patents, even after receiving formal notice of infringement. This evidence is relevant to both causal attribution and to the willful infringement analysis discussed in Section VIII.

VII. Quantification of Price Erosion Damages

A. Methodology

The quantification of price erosion damages proceeds by calculating the difference between (a) the actual revenue OWS earned on its retained sales of the OWS-400ZR during the measurement period and (b) the revenue OWS would have earned on those same retained sales at the "but for" pricing levels that would have prevailed absent Lumicore's infringing entry.

The "but for" pricing levels are derived by applying the expected normal price decline trajectory of 5–8% over the six-quarter measurement period to the Q2 2022 baseline ASP of $1,251 per unit. This produces a "but for" ASP range in each quarter that reflects what OWS would have charged had pricing followed its natural trajectory without the competitive disruption caused by the LumiLink 400G-ZR+.

The price differential in each quarter (i.e., the difference between the "but for" ASP and the actual ASP) is then multiplied by OWS's retained unit volumes for that quarter to calculate the incremental revenue lost due to price erosion. This calculation is performed on a quarter-by-quarter basis from Q3 2022 through Q4 2023 for historical damages, and projected forward from Q1 2024 through Q4 2025 for the forward-looking damages estimate through the anticipated trial date.

It is important to note that this methodology captures only the harm on retained sales — that is, sales that OWS actually made but at depressed prices. The harm from lost sales — that is, sales that OWS would have made but for Lumicore's infringement — is captured separately in the Panduit lost-profits analysis. The price erosion damages are therefore additive to, and not duplicative of, the lost-unit-volume damages.

B. Historical Price Erosion Damages (Q3 2022 – Q4 2023)

Applying the methodology described above to OWS's actual retained unit volumes and comparing actual ASPs to the "but for" ASP trajectory, the estimated incremental revenue lost due to price erosion on OWS's retained sales during the six-quarter period from Q3 2022 through Q4 2023 is approximately $38.4 to $47.2 million, depending on whether the lower bound (5% normal decline) or upper bound (8% normal decline) of the expected secular price decline trajectory is applied.

Using the midpoint estimate of 6.5% as the expected normal decline (consistent with the historical average for prior-generation products and OWS's own pre-entry decline rate), the estimated historical price erosion damages are approximately $42.8 million.

This figure reflects the cumulative revenue shortfall across all quarters of the measurement period, weighted by quarterly unit volumes. The majority of the damage is concentrated in the latter quarters of the measurement period (Q3 and Q4 2023), when the gap between actual and "but for" pricing was widest and OWS's retained unit volumes remained substantial.

This $42.8 million figure is additive to the lost-unit-volume damages captured in the Panduit analysis and represents the incremental harm from margin compression on OWS's retained 400G-ZR business.

C. Projected Price Erosion Damages (Q1 2024 – Q4 2025)

The analysis projects continued price erosion through the anticipated trial date of February 2, 2026 (with damages calculated through Q4 2025 for purposes of this analysis). Forward-looking projections are based on the following assumptions:

• Lumicore continues to sell the accused products at current volume trajectories, absent an injunction.

• OWS's ASPs remain depressed at or near the Q4 2023 level ($1,017 per unit), with modest additional secular decline of approximately 3–4% annualized.

• "But for" pricing continues on its normal decline trajectory from the Q4 2023 "but for" level of approximately $1,151–$1,188 per unit, declining at a continued rate of approximately 5–8% annualized.

• OWS's retained unit volumes remain approximately constant at Q4 2023 levels, adjusted modestly for expected market growth.

Dr. Lawrence Keating's preliminary analysis projects total accused-product revenue across all three Lumicore accused products from Q3 2022 through Q4 2025 to be approximately $714.6 million. Based on the forward-looking ASP assumptions described above, the estimated projected price erosion damages for the period Q1 2024 through Q4 2025 are approximately $52.6 to $64.8 million, with a midpoint estimate of approximately $58.7 million.

This forward-looking estimate is necessarily more uncertain than the historical estimate, as it depends on projections of future pricing and volume dynamics. The estimate will be refined as FY 2024 actual revenue data is obtained from Lumicore's supplemental discovery production, anticipated in connection with the Damages Update Memorandum targeted for February 2025.

D. Total Price Erosion Damages

The total price erosion damages, combining the historical and projected components, are estimated as follows:

These figures represent the total incremental revenue loss attributable to price erosion on OWS's retained sales. However, it is important to understand how these figures integrate into the overall damages model.

The $210 million aggregate damages demand asserted in the complaint is a blended, rounded figure incorporating three components:

1. Lost Profits under Panduit (approximately $128.9 million): Calculated as $714.6 million (projected accused-product revenue) × 38.2% (market-share displacement rate) × 47.3% (OWS gross margin on competing products). This figure captures the profits OWS would have earned on sales lost entirely to Lumicore.

2. Reasonable Royalty under Georgia-Pacific (approximately $37.5 million): Calculated as ($714.6M − $714.6M × 38.2%) × 8.5% = $441.6M × 8.5% ≈ $37.5 million. This figure applies the 8.5% royalty rate to the portion of Lumicore's accused-product revenue that does not correspond to OWS's lost sales.

3. Enhanced Damages for Willful Infringement (approximately $43.6 million): Reflecting the application of an enhancement multiplier to post-notice lost profits, as supported by the Read factor analysis and the willful infringement memorandum.

Price erosion is subsumed within and supports the lost-profits component of this demand. Specifically, the lost-profits figure of $128.9 million is calculated using OWS's pre-erosion gross margin of 47.3%, which assumes that retained sales would have been made at "but for" pricing levels. The price erosion analysis demonstrates that even on the 61.8% of sales OWS retained (i.e., the portion not displaced by Lumicore), margins were compressed below the 47.3% baseline due to competitive pricing pressure. The price erosion damages quantify this margin compression and ensure that the overall damages model captures the full scope of economic harm.

E. Interaction with Gross Margin Analysis

OWS's gross margin on competing products in the "but for" world — that is, the margin OWS would have earned absent Lumicore's infringing entry — is 47.3%, as established in the Panduit factor analysis. This margin figure is derived from OWS's cost structure and the "but for" pricing levels that would have prevailed in the absence of Lumicore's competitive pressure.

Price erosion reduces the effective gross margin on retained sales below the 47.3% baseline. As ASPs declined from the "but for" level while OWS's cost structure remained largely constant (manufacturing costs for the OWS-400ZR are primarily driven by wafer fabrication and packaging costs that do not decline in proportion to ASP reductions), the per-unit margin on each retained sale was compressed.

At the midpoint estimate of price erosion, the effective gross margin on retained sales by Q4 2023 had declined from 47.3% to approximately 39.8%, representing a margin-compression effect of approximately 7.5 percentage points. Over the full measurement period, this margin compression translates to the $42.8 million in historical price erosion damages described above.

The amplification effect is significant: because OWS's retained unit volumes remained substantial throughout the measurement period, even modest per-unit margin compression compounds into material aggregate damage. This underscores the importance of analyzing price erosion as a distinct damages category, separate from and additive to lost unit-volume damages.

VIII. Willful Infringement and Price Erosion

A. Post-Notice Acceleration of Harm

The price erosion documented in this analysis was not only foreseeable to Lumicore — it continued and intensified after Lumicore received actual notice of OWS's patent rights. The timeline of notice events is as follows:

January 15, 2023 — First Notice Letter. FairPoint Licensing Group, LLC (Managing Director: Angela Reeves), acting on behalf of OWS, sent a licensing and notice letter to Lumicore's General Counsel, Raymond Bautista, identifying U.S. Patent Nos. 10,234,847 ('847 Patent), 10,891,193 ('193 Patent), and 9,678,562 ('562 Patent). The letter identified the LumiLink 400G-ZR+ as an accused product and invited Lumicore to enter into licensing negotiations.

April 20, 2023 — In-Person Licensing Meeting. An in-person licensing meeting was held in Austin, Texas, attended by Angela Reeves and Rebecca Tanaka of FairPoint Licensing Group, LLC, Raymond Bautista of Lumicore, and Kate Rourke of Hawthorne Vega & Cruz LLP (outside patent counsel for Lumicore). According to Ms. Reeves, Lumicore showed "no interest in negotiating" a license and did not engage substantively with the claim charts or technical analysis presented by FairPoint.

May 15, 2023 — Second Notice Letter. FairPoint sent a second licensing letter to Mr. Bautista, adding U.S. Patent No. 11,402,015 (the "'015 Patent") to the list of asserted patents and expanding the list of accused products to include the LumiLink 800G-DR8 (launched Q1 2023).

July 10, 2023 — Lumicore Declines License. Lumicore formally declined to take a license, citing "competent legal opinions" that its products do not infringe the identified patents. Lumicore has not produced these opinion letters in discovery; this refusal is the subject of a pending Motion to Compel (D.E. 38), which remains under advisement by the Court.

Despite this extensive notice of OWS's patent rights, Lumicore continued to sell the LumiLink 400G-ZR+ at increasing volumes throughout 2023 and launched two additional accused products — the LumiLink 800G-DR8 (which was already on the market at the time of the first notice letter) and the LumiEdge 1600G-LR (launched in Q4 2023, more than nine months after the first notice letter and more than five months after Lumicore formally declined to take a license). The launch of the LumiEdge 1600G-LR is particularly significant: it demonstrates that Lumicore made a deliberate business decision to introduce a new product incorporating the same patented technology even after receiving multiple notices of infringement, participating in an in-person licensing meeting, and formally declining to take a license. As confirmed by Mr. Bautista's December 3, 2024 deposition testimony, no formal design-around analysis was commissioned before the LumiEdge 1600G-LR launch.

The price erosion in the post-notice period (January 2023 onward) was more severe than in the initial Q3–Q4 2022 period. The cumulative ASP decline from Q2 2022 was approximately 7.5% by Q4 2022 (before notice); it then accelerated to 18.7% by Q4 2023, with the bulk of the additional decline occurring in the post-notice period. Lumicore's decision to continue and expand its infringing activities after notice directly caused this intensification of price erosion.

B. Relevance to Enhanced Damages

The post-notice continuation and acceleration of price erosion is directly relevant to OWS's claim for enhanced damages under 35 U.S.C. § 284, as interpreted by the Supreme Court in Halo Electronics, Inc. v. Pulse Electronics, Inc., 579 U.S. 93 (2016). Post-notice lost profits from January 2023 onward are estimated at approximately $109.2 million (for purposes of the enhanced damages calculation), and price erosion damages in the post-notice period account for a substantial majority of the total price erosion damages quantified in this analysis.

The price erosion evidence demonstrates that Lumicore's post-notice conduct was not merely negligent or borderline — it was affirmatively aggressive. Lumicore not only continued selling existing accused products at increasing volumes but launched a new accused product line (the LumiEdge 1600G-LR) after receiving formal notice and declining a license, all while knowing that its pricing strategy was inflicting ongoing competitive harm on OWS. This pattern of conduct satisfies the Halo standard for "egregious" behavior warranting enhancement and supports the application of an enhancement multiplier to the damages award.

The willful infringement analysis, including the full Read factor evaluation, is set forth in the separate Willful Infringement Memorandum prepared by the litigation team. The price erosion evidence should be cross-referenced to and incorporated into that memorandum and into any motion for enhanced damages filed with the Court.

IX. Rebuttal of Anticipated Counterarguments

A. Industry-Wide Price Declines

Lumicore is expected to argue — likely through its retained damages expert, Dr. Natasha Volkov of Pinnacle Analytics Partners LLP — that the decline in 400G-ZR transceiver ASPs during the measurement period is an industry-wide phenomenon driven by secular market forces, and that it is unrelated to, or at most only marginally related to, Lumicore's entry with the LumiLink 400G-ZR+.

Rebuttal. This argument conflates two distinct phenomena: normal, secular price declines (which occur in every transceiver product generation and are accounted for in the analysis) and excess price erosion caused by the entry of a new competitor using infringing technology. The regression analysis conducted for this memorandum controls for general industry trends, product maturity effects, and volume-scaling dynamics. After controlling for these factors, the acceleration in price decline that began in Q3 2022 remains statistically significant and is not explained by secular trends alone.

Specifically, the expected normal price decline over the six-quarter measurement period was approximately 5–8%, based on historical data from prior-generation products and corroborated by industry analyst projections. The actual decline of 18.7% exceeds the expected range by 10.7 to 13.7 percentage points. This excess is temporally and causally linked to Lumicore's entry and cannot be attributed to industry-wide forces that were already present and accounted for in the pre-entry baseline. The pre-entry period itself demonstrates that these secular forces were producing a stable, moderate rate of decline of approximately 5.2% annualized — not the dramatically accelerated decline observed after Q3 2022.

Moreover, the customer-level analysis in Section V demonstrates that specific price concessions were triggered by specific competitive bids from Lumicore, not by generalized industry trends. OWS's internal sales records and communications provide direct evidence that pricing decisions were made in response to Lumicore's competitive offers, establishing a causal mechanism that goes beyond statistical correlation.

B. Customer Bargaining Power

Lumicore may argue that hyperscale data-center customers possess inherent bargaining power that drives down supplier ASPs regardless of the number of competitors in the market, and that the observed price declines reflect the exercise of this bargaining power rather than the competitive impact of any single entrant.

Rebuttal. While it is true that hyperscale customers exert significant bargaining leverage in procurement negotiations, the evidence demonstrates that the price concessions OWS was forced to grant during the measurement period were specifically tied to competitive bids from Lumicore, not to the general exercise of customer bargaining power.

The critical evidence is the before-and-after comparison: during the pre-entry period (Q1–Q2 2022), the same hyperscale customers were purchasing the same OWS-400ZR product, and they possessed the same bargaining power. Yet ASPs declined at a moderate, stable rate consistent with normal industry trends. The sharp acceleration in price decline beginning in Q3 2022 cannot be explained by a change in customer bargaining power, because that power did not change; what changed was the competitive landscape, specifically the addition of Lumicore as a viable alternative supplier offering a 400G-ZR product at aggressively competitive prices.

OWS's customer-level sales records confirm this conclusion. Internal communications from OWS sales teams consistently identify Lumicore competitive bids — not general customer pressure — as the proximate cause of price concessions. Multiple OWS account managers specifically referenced Lumicore quotes or Lumicore design-in awards as the reason for escalating pricing approvals to management.

C. Non-Accused Competitors

Lumicore may also argue that other suppliers — the two incumbent competitors that were already present in the 400G-ZR market before Lumicore's entry — were the cause of, or significant contributors to, the observed price erosion.

Rebuttal. The market analysis conducted for the market-share displacement study and confirmed by publicly available industry data shows that no new entrants other than Lumicore entered the 400G-ZR transceiver market with comparable silicon-photonics products during the Q3 2022 through Q4 2023 measurement period. The two pre-existing incumbent suppliers maintained relatively stable pricing and market share throughout this period; their competitive behavior did not change materially in a manner that would explain the observed acceleration in price decline.

Furthermore, the two incumbents' products do not offer the same combination of performance and cost advantages as the LumiLink 400G-ZR+ because they do not practice OWS's patented technology. The unique combination of the patented waveguide multiplexer structures and thermal management micro-channels is what enabled Lumicore to offer a differentiated price-performance proposition that disrupted the competitive equilibrium. The pre-existing incumbents, lacking these patented features, did not exert the type of sudden, disruptive pricing pressure that Lumicore was able to bring to bear.

The temporal evidence is dispositive: the price decline acceleration coincides with Lumicore's entry, not with any change in the competitive behavior of pre-existing incumbents. There is no evidence that either incumbent launched a new product, implemented a new pricing strategy, or otherwise changed its competitive approach in a manner that would account for the observed acceleration.

X. Integration with Other Damages Analyses

A. Relationship to Lost Profits (Panduit Analysis)

The lost-profits analysis under the Panduit framework focuses on lost unit sales — that is, sales that Lumicore made with the accused products that OWS would have made but for Lumicore's infringing entry. The lost-profits calculation is:

$714.6 million (projected accused-product revenue, Q3 2022 – Q4 2025) × 38.2% (market-share displacement rate) × 47.3% (OWS gross margin on competing products) = approximately $128.9 million.

Price erosion captures a distinct and additive category of harm: margin compression on the sales OWS retained but at lower prices. The lost-profits calculation assumes that OWS would have earned a 47.3%

PRIVILEGED AND CONFIDENTIAL ATTORNEY WORK PRODUCT / ATTORNEY-CLIENT PRIVILEGED COMMUNICATION PREPARED IN ANTICIPATION OF LITIGATION CONTAINS INFORMATION DESIGNATED "HIGHLY CONFIDENTIAL — ATTORNEYS' EYES ONLY" UNDER THE STIPULATED PROTECTIVE ORDER ENTERED AUGUST 19, 2024
CALDERWOOD & HARKNESS LLP
PRICE EROSION ANALYSIS 400G-ZR Transceiver Market
Optiwave Semiconductor Corp. v. Lumicore Technologies, Inc. Case No. 2:24-cv-00319-JRG (E.D. Tex.)
January 2025
Prepared by: Omar Siddiqui, Associate, Calderwood & Harkness LLP
Reviewed by: Wendy Schultz, Lead Associate, Calderwood & Harkness LLP; Alan Ngo, Partner, Calderwood & Harkness LLP
Matter: Optiwave Semiconductor Corp. v. Lumicore Technologies, Inc., Case No. 2:24-cv-00319-JRG (E.D. Tex.)
Privileged: Attorney Work Product / Attorney-Client Privileged Communication — Prepared in Anticipation of Litigation
Confidentiality: This document contains information designated "Highly Confidential — Attorneys' Eyes Only" under the Stipulated Protective Order entered August 19, 2024. Distribution is limited to attorneys of record and authorized in-house counsel as specified in the Protective Order. This document may not be disclosed to any person not authorized under the Protective Order without prior written consent of counsel or further order of the Court.
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I. Executive Summary
This memorandum presents a detailed price erosion analysis quantifying the decline in average selling prices ("ASPs") experienced by Optiwave Semiconductor Corp. ("OWS") in the 400G-ZR coherent optical transceiver market attributable to the market entry of Lumicore Technologies, Inc. ("Lumicore") with the accused LumiLink 400G-ZR+ product beginning in Q3 2022. The purpose of this analysis is to support the damages case in Optiwave Semiconductor Corp. v. Lumicore Technologies, Inc., Case No. 2:24-cv-00319-JRG, pending before Judge James R. Gilstrap in the Eastern District of Texas, with trial currently set for February 2, 2026.
Key Finding. Average selling prices for 400G-ZR-class coherent optical transceivers declined approximately 18.7% from Q3 2022 to Q4 2023, a period coinciding precisely with Lumicore's launch and subsequent ramp of the LumiLink 400G-ZR+ module. After controlling for normal, secular industry price decline trends — which historical analysis and industry data indicate would account for approximately 5–8% over the same period — the excess price erosion attributable to Lumicore's entry with infringing products is approximately 10.7 to 13.7 percentage points. This excess erosion represents a distinct and measurable category of economic harm caused by Lumicore's infringement of OWS's patented technology.
Significance for Damages. Price erosion provides an incremental and additive category of harm beyond lost unit-volume analysis under the Panduit Corp. v. Stahlin Bros. Fibre Works, Inc., 575 F.2d 1152 (6th Cir. 1978), lost-profits framework. Even on sales that OWS retained during the measurement period, OWS was forced to reduce pricing in response to competitive pressure from the LumiLink 400G-ZR+, resulting in lower margins and reduced profitability on those retained sales. This analysis supports the damages model being developed by Dr. Lawrence Keating of Meridian Economic Consulting Group, LLC, OWS's retained damages expert, by demonstrating that the harm caused by Lumicore's infringement extends beyond mere lost sales volumes to encompass margin compression on OWS's entire book of 400G-ZR business.
This price erosion analysis supplements and integrates with the following previously completed work product prepared by the litigation team:
• Market-Share Displacement Analysis (June 2024): Establishing a 38.2% displacement figure — that is, OWS would have captured approximately 38.2% of the sales actually made by Lumicore but for Lumicore's infringing entry.
• Panduit Factor Analysis (May 2024): Confirming that OWS satisfies all four Panduit factors for recovery of lost profits, including a demonstrated 47.3% gross margin on competing products.
• Comparable License Analysis (July 2024): Identifying five comparable licenses supporting an 8.5% reasonable royalty rate under the Georgia-Pacific fifteen-factor framework.
• Damages Theory Strategy Memorandum (April 2024): Setting forth the overall three-pronged damages framework (lost profits, reasonable royalty, and enhanced damages for willful infringement).
Total Damages Demand. OWS's total damages demand in this action is approximately $210 million, a blended and rounded figure incorporating lost profits (approximately $128.9 million under the Panduit framework), a reasonable royalty (approximately $37.5 million at an 8.5% rate on non-lost-profit sales under the Georgia-Pacific analysis), and enhanced damages for willful infringement (approximately $43.6 million). The price erosion analysis presented herein is subsumed within and supports the lost-profits component of this demand by demonstrating the full scope of economic harm caused by Lumicore's infringing conduct.
II. Scope and Methodology
A. Products Analyzed
This analysis focuses on two primary products that compete directly in the 400G-ZR coherent optical transceiver market:
OWS's Competing Product: OWS-400ZR Transceiver Module. The OWS-400ZR is OWS's flagship 400G-ZR coherent optical transceiver module, designed for deployment in hyperscale data-center interconnect applications. The OWS-400ZR is part of OWS's key product family, which also includes the OWS-800XR (an 800G next-generation module) and the OWS-1600DR (a 1.6T ultra-high-bandwidth module currently in qualification). OWS sells the OWS-400ZR to hyperscale data-center operators, cloud service providers, and major telecommunications companies. The OWS-400ZR practices one or more claims of each of the three asserted patents in this litigation: the '847 Patent (waveguide multiplexer structures), the '193 Patent (coherent signal processing architecture), and the '562 Patent (thermal management micro-channel heat sinks). OWS is the third-largest U.S. supplier of silicon-photonics transceiver modules for hyperscale data centers, with a portfolio of 142 issued U.S. patents and 58 pending patent applications reinforcing its technology differentiation in the market.
Lumicore's Accused Product: LumiLink 400G-ZR+. The LumiLink 400G-ZR+ is the primary accused product at issue in this analysis. Lumicore launched the LumiLink 400G-ZR+ in Q3 2022, following Lumicore's Nasdaq IPO in March 2022. The LumiLink 400G-ZR+ is accused of infringing the following patents:
• U.S. Patent No. 10,234,847 (the "'847 Patent"): Directed to waveguide multiplexer structures for coherent optical transceivers.
• U.S. Patent No. 10,891,193 (the "'193 Patent"): Directed to coherent signal processing architectures for high-bandwidth optical modules.
• U.S. Patent No. 9,678,562 (the "'562 Patent"): Directed to thermal management micro-channel heat sink designs for photonics modules; originally assigned to Solara Optics, Inc. and acquired by OWS via an asset purchase agreement dated June 15, 2018, for $34.5 million.
Per Lumicore's segment disclosures produced in discovery, the LumiLink 400G-ZR+ generated $94.8 million in revenue during fiscal year 2023. Lumicore's total accused-product portfolio also includes two additional products — the LumiLink 800G-DR8 (launched Q1 2023; FY 2023 revenue of $128.4 million) and the LumiEdge 1600G-LR (launched Q4 2023; FY 2023 revenue of $41.7 million) — which, while not the primary focus of this analysis, contribute to the overall competitive and pricing pressure exerted on OWS and are addressed where relevant.
B. Time Period
The analysis spans three distinct periods:
Pre-Entry Baseline Period: Q1 2022 through Q2 2022. This period precedes the launch of the LumiLink 400G-ZR+ and establishes the baseline pricing environment for the OWS-400ZR in the absence of Lumicore's competitive entry. During this period, the OWS-400ZR had established market positioning as a leading 400G-ZR module, and pricing was relatively stable, declining only in accordance with normal industry trends.
Post-Entry Measurement Period: Q3 2022 through Q4 2023. This period begins with the launch of the LumiLink 400G-ZR+ in Q3 2022 and extends through Q4 2023, encompassing the six-quarter period during which the most pronounced price erosion was observed. This period includes the launches of Lumicore's two additional accused products (LumiLink 800G-DR8 in Q1 2023 and LumiEdge 1600G-LR in Q4 2023), each of which contributed to intensifying competitive pressure.
Extended Forward Projection Period: Q1 2024 through Q4 2025. This period extends the analysis forward through the projected trial date of February 2, 2026, allowing for the estimation of ongoing price erosion damages through the date of trial. Projections for this period are based on forward-looking ASP assumptions derived from trend analysis and Dr. Keating's preliminary damages model.
C. Data Sources
The analysis relies upon the following categories of data, each of which has been produced or is available in the record of this litigation:
OWS Internal Financial Records (Discovery Production). OWS's quarterly ASP data for the OWS-400ZR module, broken down by customer, by volume tier, and by geography, has been produced in discovery and forms the foundation of the pricing analysis. These records include transaction-level data for each quarter from Q1 2022 through Q4 2023, enabling granular analysis of pricing trends at both the aggregate and customer-specific levels. OWS's FY 2023 total revenue was $487.3 million (per audited financial statements prepared by Gresham & Whitfield LLP), of which approximately $310 million is attributable to products practicing one or more claims of the asserted patents. OWS's FY 2023 net income was $61.4 million. OWS's gross margin on competing products was 47.3% (per OWS internal financial records produced in discovery).
Lumicore Product-Level Financial Data (AEO discovery Production). Lumicore's product-level financial data for the LumiLink 400G-ZR+ (and the other accused products) has been produced in discovery under the "Highly Confidential — Attorneys' Eyes Only" designation pursuant to the Stipulated Protective Order entered August 19, 2024. This data includes ASPs, gross margins, and customer-by-customer revenue breakdowns. Key data points include: LumiLink 400G-ZR+ FY 2023 revenue of $94.8 million; LumiLink 400G-ZR+ gross margin of 52.1%; and quarterly ASP trajectories for each accused product. Lumicore's overall FY 2023 revenue is estimated at $312.6 million, of which $264.9 million is attributable to the three accused products ($94.8M + $128.4M + $41.7M).
Third-Party Market Data. Industry reports on 400G-ZR transceiver pricing trends from publicly available semiconductor-industry analyst reports have been used to contextualize and validate the pricing trends observed in OWS's and Lumicore's internal data. These reports provide independent confirmation of the acceleration in price declines following Lumicore's market entry and establish the baseline for normal, secular price decline expectations.
Benchmark Semiconductor Analysis, LLC Teardown Report. The teardown report dated December 12, 2022, prepared by Lead Engineer Kevin Ng of Benchmark Semiconductor Analysis, LLC, confirmed the presence of OWS's patented waveguide multiplexer structures and thermal management micro-channel heat sinks in the LumiLink 400G-ZR+ module. This report is relevant to causal attribution, as it establishes that Lumicore's ability to offer competitive pricing was enabled by its use of OWS's patented technology.
D. Analytical Framework
The analysis employs a four-part analytical framework designed to isolate and quantify the price erosion attributable to Lumicore's infringing entry:
Step 1: Before-and-After Comparison. The analysis begins with a direct comparison of OWS-400ZR ASPs before Lumicore's entry (Q1–Q2 2022) and after Lumicore's entry (Q3 2022–Q4 2023). This comparison establishes the total magnitude of the observed price decline.
Step 2: Isolation of Infringing-Entry Effect. The analysis then isolates the portion of the price decline attributable to Lumicore's competitive pressure, as distinguished from secular industry trends. Secular trends include normal technology-generation price declines (driven by manufacturing maturity and yield improvements), volume-scaling effects (as aggregate market demand for 400G-ZR modules increased), and contractual renegotiations (routine annual price adjustments embedded in long-term supply agreements). Historical data from prior-generation transceiver products (100G, 200G) is used to establish the expected rate of secular price decline.
Step 3: Regression Analysis. A multivariate regression analysis controlling for volume, customer mix, product maturity, and broader macroeconomic factors (including supply-chain disruptions, component cost fluctuations, and demand volatility) is used to test and refine the before-and-after comparison. The regression is designed to ensure that the estimated excess price erosion attributable to Lumicore's entry is not confounded by other variables.
Step 4: Counterfactual ("But For") Pricing Model. Finally, a counterfactual pricing model is constructed to estimate the price trajectory OWS would have experienced absent Lumicore's infringing entry. This model projects OWS-400ZR ASPs forward from the pre-entry baseline, applying the expected normal price decline trajectory, and compares the resulting "but for" prices to the actual prices observed in each quarter. The difference between "but for" revenue and actual revenue on retained sales constitutes the price erosion damages.
This framework is consistent with established methodologies for price erosion analysis in patent damages cases and is aligned with the approach employed by Dr. Keating in his preliminary damages model.
III. Pre-Entry Pricing Baseline (Q1 2022 – Q2 2022)
A. OWS-400ZR ASP Levels
In order to measure the price erosion caused by Lumicore's infringing entry, it is first necessary to establish a reliable baseline for OWS-400ZR ASPs in the period immediately preceding the launch of the LumiLink 400G-ZR+.
At the beginning of Q1 2022, the average selling price for the OWS-400ZR transceiver module, across all customers and volume tiers, was approximately $1,285 per unit (based on OWS's internal financial records). This figure reflects a weighted average across OWS's customer base, encompassing both higher-priced low-volume orders (typically from Tier 2 and Tier 3 data-center operators) and lower-priced high-volume orders (typically from top-tier hyperscale customers with negotiated volume discount schedules).
During Q1 2022, the OWS-400ZR ASP declined modestly to approximately $1,268 per unit, reflecting normal quarterly fluctuations in customer mix and the effect of a scheduled annual price adjustment with one major hyperscale account. In Q2 2022, the ASP further declined to approximately $1,251 per unit, consistent with a gradual, orderly price decline trajectory typical of a mature but still-differentiated product. The Q2 2022 figure of $1,251 per unit serves as the immediate pre-entry baseline against which post-entry price declines are measured.
Over the two-quarter pre-entry baseline period, the OWS-400ZR ASP declined by approximately 2.6% (from $1,285 to $1,251), which annualizes to approximately 5.2%. This rate of decline is consistent with the expected normal price decline trajectory described in Section III.C below and confirms that pricing was on a stable, predictable course prior to Lumicore's entry.
B. Competitive Landscape Before Lumicore's Entry
Prior to Q3 2022, the 400G-ZR coherent optical transceiver market was characterized by a limited number of suppliers with comparable silicon-photonics integration capabilities. The market was effectively supplied by three major U.S.-based and international incumbents, of which OWS was one, along with a small number of niche and regional players with limited market penetration.
OWS competed primarily with two other major incumbents in the 400G-ZR space. Neither of these incumbents had introduced a product with the specific combination of performance characteristics offered by OWS's patented waveguide multiplexer and thermal management technologies, and OWS's differentiation on these dimensions supported its ability to command a pricing premium. Lumicore, which had been primarily focused on lower-bandwidth transceiver products prior to its March 2022 IPO, had not yet launched a competing 400G-ZR product and was not a factor in the 400G-ZR competitive landscape.
Customer procurement patterns during the pre-entry period showed limited downward pressure on pricing beyond normal contract renewal adjustments. Discounts were primarily tied to volume tiers rather than competitive bidding dynamics, and OWS's established relationships with hyperscale customers provided a degree of pricing stability. While OWS did occasionally face competitive pressure from the other two major incumbents, this pressure was relatively stable and predictable, and it did not produce the type of sudden, accelerating price decline that occurred after Lumicore's entry.
C. Normal Price Decline Trajectory
In order to distinguish between price declines attributable to Lumicore's entry and price declines that would have occurred in the normal course, the analysis establishes an expected rate of normal, secular price decline for the OWS-400ZR.
Historical analysis of prior-generation transceiver products provides a reliable basis for this estimate. Specifically:
• 100G QSFP28 Transceivers: During the mature phase of the 100G product cycle (approximately 2016–2019), ASPs declined at an annualized rate of approximately 6–8% per year, driven by manufacturing yield improvements, component cost reductions, and increasing competitive supply.
• 200G QSFP56 Transceivers: During the mature phase of the 200G product cycle (approximately 2019–2022), ASPs declined at an annualized rate of approximately 5–7% per year, reflecting similar dynamics.
Based on this historical data, and corroborated by publicly available semiconductor-industry analyst reports projecting 400G-ZR price trends, the expected normal price decline for the OWS-400ZR during the post-entry measurement period (Q3 2022 through Q4 2023) was approximately 5–8% over the full six-quarter period, or approximately 3.3–5.3% annualized. This represents the rate of price decline OWS would have experienced in the "but for" world absent Lumicore's infringing entry, and it serves as the foundation for the counterfactual pricing model described in Section VII.
It is important to note that the pre-entry ASP decline of approximately 2.6% over two quarters (annualized at approximately 5.2%) falls squarely within the expected range of 5–8% annualized, confirming the validity of this baseline.
IV. Post-Entry Price Decline Analysis (Q3 2022 – Q4 2023)
A. Lumicore's Market Entry and Pricing Strategy
Lumicore launched the LumiLink 400G-ZR+ in Q3 2022, approximately five months after its Nasdaq IPO in March 2022. Lumicore's IPO price was $24 per share; at the time of the filing of the complaint in this action on 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 post-IPO growth trajectory has been substantially driven by the success of its accused product line, which generated $264.9 million in FY 2023 revenue — representing approximately 84.7% of Lumicore's total estimated FY 2023 revenue of $312.6 million.
Evidence obtained through discovery — including internal Lumicore marketing plans, sales strategy presentations, and executive communications — reveals that Lumicore adopted an aggressive pricing strategy designed to rapidly capture market share from incumbent suppliers, including OWS. Internal Lumicore documents describe a "land and expand" strategy in which the LumiLink 400G-ZR+ was priced at levels intended to undercut incumbents' pricing by a sufficient margin to win initial design-in opportunities at target hyperscale accounts, with the expectation that subsequent product generations (the 800G-DR8 and 1600G-LR) would follow. One internal Lumicore sales strategy document, dated April 2022, identified OWS by name as a "primary displacement target" and set specific pricing benchmarks designed to undercut OWS's pricing at identified accounts.
Critically, Lumicore's ability to execute this aggressive pricing strategy while maintaining healthy margins was enabled by its infringing use of OWS's patented technology. The LumiLink 400G-ZR+ achieved a gross margin of 52.1% (per Lumicore's financial data produced under AEO designation), indicating that even at its discounted pricing levels, Lumicore earned margins that exceeded OWS's own 47.3% gross margin on competing products. This margin profile was made possible by the performance and manufacturing-cost advantages conferred by OWS's patented waveguide multiplexer structures ('847 Patent) and thermal management micro-channel heat sinks ('562 Patent), as confirmed by the Benchmark Semiconductor Analysis, LLC teardown report dated December 12, 2022, prepared by Lead Engineer Kevin Ng. The teardown identified specific structural and design elements in the LumiLink 400G-ZR+ that correspond to the claimed inventions of the '847 and '562 Patents, establishing a direct link between Lumicore's use of patented technology and its ability to achieve competitive pricing.
B. Quarterly ASP Trajectory for OWS-400ZR
The following table summarizes the quarter-by-quarter ASP trajectory for the OWS-400ZR from Q2 2022 (the immediate pre-entry baseline) through Q4 2023:
Q3 2022. The initial quarter of Lumicore's entry saw an immediate and pronounced acceleration in OWS-400ZR ASP decline. The quarter-over-quarter decline of 3.4% was substantially greater than the approximately 1.3% quarterly decline observed during the pre-entry baseline period. This acceleration coincided directly with the launch of the LumiLink 400G-ZR+ and the first competitive bids from Lumicore at overlapping accounts.
Q4 2022. The rate of decline accelerated further in Q4 2022, with a 4.2% quarter-over-quarter drop, as Lumicore won its initial design-in opportunities at several major hyperscale accounts. OWS's internal sales records from this period show multiple instances of price concessions granted by OWS sales teams in response to specific Lumicore competitive bids, as discussed in Section V below.
Q1 2023. The decline continued at a 3.9% quarterly rate, coinciding with Lumicore's launch of the LumiLink 800G-DR8 in Q1 2023. Although the 800G-DR8 operates in a different bandwidth segment (800G vs. 400G), its launch created additional competitive pressure across Lumicore's and OWS's overlapping product lines. The 800G-DR8 generated $128.4 million in FY 2023 revenue, further establishing Lumicore as a broad-based competitive threat and giving Lumicore additional leverage in multi-product procurement negotiations with hyperscale customers.
Q2 2023. Price erosion continued at a 3.1% quarterly rate as Lumicore expanded its customer base beyond initial design-in accounts. By this point, Lumicore had established relationships with a significant number of the top-tier hyperscale data-center operators, and competitive dynamics had shifted decisively. OWS was increasingly forced to compete on price rather than differentiation alone.
Q3 2023. Pricing remained at sustained lower levels, with a 2.8% quarterly decline indicating that while the rate of acceleration had moderated slightly, the overall downward trajectory remained firmly in place. The cumulative decline from Q2 2022 had reached 16.2%.
Q4 2023. The OWS-400ZR ASP reached the nadir of the measurement period at approximately $1,017 per unit, representing a cumulative decline of 18.7% from the Q2 2022 baseline of $1,251 per unit. This quarter coincided with Lumicore's launch of the LumiEdge 1600G-LR (FY 2023 revenue of $41.7 million), which further broadened competitive pressure across the transceiver product spectrum. Total accused-product revenue for FY 2023 across all three accused products was $264.9 million ($94.8M + $128.4M + $41.7M).
C. Comparison to Expected "But For" Price Decline
As established in Section III.C, the expected normal price decline for the OWS-400ZR over the six-quarter post-entry measurement period (Q3 2022 through Q4 2023) was approximately 5–8%, based on historical patterns for prior-generation products and corroborated by industry analyst projections. Had pricing followed this normal trajectory, the OWS-400ZR ASP at the end of Q4 2023 would have been in the range of approximately $1,151 to $1,188 per unit (applying a 5–8% decline to the Q2 2022 baseline of $1,251).
The actual decline of 18.7% — to $1,017 per unit — substantially exceeds this expected range. The excess price erosion attributable to Lumicore's entry is therefore approximately 10.7 to 13.7 percentage points (i.e., the 18.7% actual decline minus the 5–8% expected normal decline). In absolute dollar terms, this translates to an excess per-unit ASP decline of approximately $134 to $171 per unit (the difference between the "but for" ASP range of $1,151–$1,188 and the actual Q4 2023 ASP of $1,017).
This excess decline is directly traceable to Lumicore's competitive impact in the market using OWS's patented technology. The regression analysis described in Section II.D confirms this conclusion after controlling for volume effects, customer mix shifts, product maturity, and macroeconomic variables. The temporal correlation is striking: the acceleration in price decline began precisely in Q3 2022 — the quarter of LumiLink 400G-ZR+ launch — and intensified with each subsequent Lumicore product launch.
V. Customer-Level Analysis of Price Erosion
A. Head-to-Head Competition at Overlapping Accounts
The aggregate ASP decline documented in Section IV is corroborated by granular, customer-level analysis of pricing dynamics at accounts where OWS and Lumicore compete directly. Per the market-share displacement analysis completed in June 2024, OWS and Lumicore compete head-to-head at 12 of the top 20 hyperscale data-center operators in the United States and internationally. These 12 overlapping accounts represent the locus of competitive interaction where Lumicore's pricing pressure is most directly felt and where OWS's price concessions have been most pronounced.
The following examples illustrate the pattern of price erosion at specific overlapping accounts. Customer names are presented using code designations consistent with the confidentiality provisions of the Stipulated Protective Order:
Customer Alpha. Customer Alpha is one of the five largest hyperscale data-center operators globally and was a long-standing OWS-400ZR customer. In Q3 2022, following the LumiLink 400G-ZR+ launch, Lumicore submitted a competitive bid to Customer Alpha that undercut OWS's then-current pricing by approximately 12%. OWS's regional sales team, in coordination with OWS VP of Sales Karen Whitfield, authorized a price reduction of approximately 9% to retain the design-in position. Internal OWS communications from October 2022 explicitly reference the Lumicore bid as the reason for the price concession. Despite the concession, Lumicore won approximately 30% of the volume allocation at Customer Alpha in Q1 2023.
Customer Beta. Customer Beta is a major North American cloud service provider. In Q4 2022, OWS learned through its customer contacts that Lumicore had offered the LumiLink 400G-ZR+ at a price approximately 15% below OWS's current contracted rate. OWS's sales records show that OWS reduced its pricing by approximately 11% at Customer Beta's next quarterly order cycle to prevent full displacement. OWS retained the account but at substantially reduced margins.
Customer Gamma. Customer Gamma is a Tier 1 telecommunications operator with significant data-center interconnect deployments. OWS sales records show that Customer Gamma began requesting competitive bids from Lumicore in Q1 2023 and used Lumicore's pricing as leverage to renegotiate its existing OWS supply agreement. OWS ultimately agreed to a 7% price reduction effective Q2 2023.
Customer Delta. Customer Delta is a hyperscale operator that awarded a new design-in to Lumicore in Q3 2022 after Lumicore offered pricing approximately 18% below OWS's quoted price. OWS lost this design-in entirely and was not able to recapture the volume, even at reduced pricing. This loss is captured in the unit-volume lost-profits analysis rather than the price erosion analysis, but it illustrates the competitive dynamics driving price erosion at other accounts: OWS's awareness of losses like Customer Delta motivated preemptive price concessions at other accounts.
Customer Epsilon. Customer Epsilon is an international hyperscale operator with procurement operations in multiple geographies. OWS's records show that in Q2 2023, Customer Epsilon presented OWS with a Lumicore quote as part of its annual procurement review and demanded a price reduction of 14% to maintain OWS as its primary supplier. OWS negotiated the reduction down to 10% but was forced to accept terms significantly below its pre-entry pricing.
Across these five illustrative accounts, the pattern is consistent: Lumicore's competitive bids directly triggered OWS price concessions that would not have occurred absent Lumicore's entry with the infringing LumiLink 400G-ZR+ product. The customer-level data confirms that the aggregate 18.7% ASP decline is driven by specific, identifiable competitive interactions rather than diffuse, unattributable market forces.
B. Customers in the Eastern District of Texas
In addition to the overlapping accounts described above, the customer-level analysis is relevant to establishing the connection between Lumicore's infringing sales and the Eastern District of Texas. Lumicore sold accused products — including the LumiLink 400G-ZR+ — to at least three customers with facilities located within the Eastern District of Texas:
• Pinnacle Data Systems, LLC, located at 1800 Judson Road, Longview, Texas 75601.
• Frontier Cloud Services, Inc., located at 400 East Houston Street, marshall, Texas 75670.
• CrossPoint Networking Corp., located at 7500 Dallas Parkway, Suite 200, Plano, Texas 75024 (transferred to Tyler Division for case management).
Price competition at these accounts contributed to overall ASP decline for OWS, and OWS's sales records show price concessions at these accounts that are consistent with the broader pattern of Lumicore-driven price erosion documented in this analysis.
C. Design-In Displacement Effects
The price erosion and design-in displacement effects documented in this analysis and in the market-share displacement analysis are closely interrelated and mutually reinforcing. When Lumicore won a design-in at a particular account (as occurred at Customer Delta and partially at Customer Alpha), the effect was not limited to the lost volume at that account. Rather, each design-in loss signaled to OWS and to other customers that Lumicore was a viable, competitive alternative to OWS in the 400G-ZR market. This had two cascading effects:
First, OWS was forced to lower prices preemptively at other accounts to prevent further displacement. OWS's internal sales strategy documents from late 2022 and early 2023 show a deliberate decision to "hold the line" on key accounts by offering pricing concessions, even at the cost of reduced margins, in order to prevent a broader erosion of OWS's installed base and market position.
Second, customers gained additional negotiating leverage as Lumicore's market presence expanded. Even customers that had no intention of switching to Lumicore used the availability of the LumiLink 400G-ZR+ as a bargaining chip in price negotiations with OWS, extracting concessions that would not have been possible in the absence of a competitive Lumicore product.
This interrelationship between unit-volume losses and price erosion is precisely why price erosion must be analyzed as a distinct and additive category of harm: the Panduit lost-profits analysis captures the harm from lost sales, but it does not capture the margin compression on retained sales that results from the competitive dynamics described here. Customer impact declarations being prepared by OWS VP of Sales Karen Whitfield and OWS's regional sales directors will provide additional supporting testimony for these dynamics at trial.
VI. Causal Attribution: Lumicore's Infringing Products as the Driver
A. Temporal Correlation
The temporal correlation between Lumicore's market entry and the acceleration in OWS-400ZR price declines is among the strongest pieces of evidence supporting causal attribution. The data demonstrates the following pattern:
• Pre-entry (Q1–Q2 2022): OWS-400ZR ASPs declined at a stable, moderate rate of approximately 1.3% per quarter, consistent with normal industry trends and the historical decline rates for prior-generation products.
• Q3 2022 (LumiLink 400G-ZR+ launch): The rate of ASP decline approximately tripled, from 1.3% per quarter to 3.4% in Q3 2022, coinciding precisely with the commercial launch of the LumiLink 400G-ZR+.
• Q4 2022: The rate of decline accelerated further to 4.2% per quarter as Lumicore won initial design-in opportunities and OWS responded with price concessions.
• Q1 2023 (LumiLink 800G-DR8 launch): The rate of decline remained elevated at 3.9% per quarter, coinciding with Lumicore's launch of its second accused product, the LumiLink 800G-DR8, which broadened Lumicore's competitive footprint.
• Q4 2023 (LumiEdge 1600G-LR launch): The cumulative decline reached 18.7%, with the final quarter of the measurement period coinciding with Lumicore's launch of its third accused product, the LumiEdge 1600G-LR.
There was no comparable acceleration in price declines in the quarters preceding Lumicore's entry. No other market event occurring in Q3 2022 accounts for the sudden shift in pricing dynamics. The correlation between Lumicore's product launches and inflection points in OWS's ASP trajectory is both temporally precise and economically significant.
B. Lumicore's Use of Patented Technology Enabled Competitive Pricing
The causal link between Lumicore's infringing conduct and OWS's price erosion is not merely temporal — it is technological and economic. Lumicore's ability to offer the LumiLink 400G-ZR+ at aggressively competitive prices while maintaining a 52.1% gross margin was directly enabled by its use of OWS's patented technology.
The Benchmark Semiconductor Analysis, LLC teardown report, dated December 12, 2022 and prepared by Lead Engineer Kevin Ng, confirmed that the LumiLink 400G-ZR+ incorporates:
• Waveguide multiplexer structures corresponding to the claims of the '847 Patent, which enable efficient optical signal combining and splitting within a compact form factor, reducing die size and manufacturing cost while improving optical performance.
• Thermal management micro-channel heat sinks corresponding to the claims of the '562 Patent (originally assigned to Solara Optics, Inc. and acquired by OWS via asset purchase agreement dated June 15, 2018, for $34.5 million), which enable superior heat dissipation in high-power coherent optical modules, improving reliability and enabling higher-density packaging.
These patented features provide both performance and cost advantages. The waveguide multiplexer structures reduce silicon die area requirements by an estimated 15–20%, directly lowering per-unit manufacturing costs. The thermal management micro-channels enable higher operating power densities without the need for more expensive active cooling solutions, further reducing bill-of-materials cost. Together, these technologies allowed Lumicore to offer a product that matched or exceeded OWS's performance specifications at a lower price point — while still earning margins above 50%.
But for the use of OWS's patented technology, Lumicore would not have been able to achieve the performance and cost profile that supported its aggressive pricing strategy. Without the patented waveguide multiplexer structures, Lumicore would have been forced to use less efficient optical architectures that consume more die area and increase manufacturing cost. Without the patented thermal management micro-channels, Lumicore would have been required to use costlier or bulkier cooling solutions that would have increased module cost and potentially compromised form-factor compatibility. In either case, Lumicore's ability to undercut OWS's pricing would have been substantially diminished, and the observed price erosion would not have occurred.
C. Absence of Non-Infringing Alternatives
The causal analysis is further supported by the absence of viable non-infringing alternatives. The Panduit factor analysis completed in May 2024 evaluated four potential non-infringing alternative designs that Lumicore could theoretically have adopted for the LumiLink 400G-ZR+:
1. Planar lightwave circuit (PLC) multiplexer architecture: Found to lack the integrated, monolithic waveguide structure claimed in the '847 Patent, resulting in larger module size, lower optical efficiency, and higher manufacturing cost.
2. Discrete bulk-optics multiplexer design: Found to be incompatible with the QSFP-DD form factor required by hyperscale customers, rendering it commercially non-viable.
3. External heat-sink assembly (non-micro-channel): Found to lack the thermal performance required to support the 400G-ZR+ operating power envelope without derating optical output, resulting in inferior performance relative to OWS's OWS-400ZR.
4. Hybrid micro-channel design with modified channel geometry: Found to infringe at least claims 1, 5, and 12 of the '562 Patent under the doctrine of equivalents, as confirmed by OWS's technical expert.
Each of the four evaluated alternatives was found to lack one or more key patented features necessary to achieve performance, form factor, and cost parity with the OWS-400ZR. This supports the conclusion that Lumicore's price competitiveness was enabled specifically by its infringing use of OWS's technology, not by independent innovation or the use of non-infringing alternatives.
D. Deposition Testimony
Deposition testimony obtained in this litigation further supports the causal attribution of price erosion to Lumicore's infringing use of OWS's technology.
Dr. Sandra Michaud, Lumicore CTO (Deposed November 19, 2024). During her deposition, Dr. Michaud admitted that Lumicore's engineering team reviewed OWS's published patent application No. 2018/0123456 — which corresponds to the '193 Patent (U.S. Patent No. 10,891,193) — during the design phase of the LumiLink 400G-ZR+. Specifically, Dr. Michaud testified that the published application was among the technical literature reviewed by Lumicore's optical design group and that certain design concepts described in the application were "considered" in the context of the LumiLink 400G-ZR+ development program. This admission establishes that Lumicore had actual knowledge of OWS's patented technology during the design phase and supports the inference that Lumicore intentionally adopted OWS's innovations to achieve the competitive performance and pricing profile that drove price erosion.
Raymond Bautista, Lumicore General Counsel (Deposed December 3, 2024). Mr. Bautista confirmed during his deposition that no formal design-around analysis was commissioned by Lumicore before the launch of the LumiEdge 1600G-LR in Q4 2023 — despite the fact that Lumicore had received two notice letters from FairPoint Licensing Group, LLC (dated January 15, 2023, and May 15, 2023) identifying the asserted patents and accusing specific Lumicore products of infringement. Mr. Bautista's testimony establishes that Lumicore proceeded with the launch of a third accused product without taking any steps to design around OWS's patents, even after receiving formal notice of infringement. This evidence is relevant to both causal attribution and to the willful infringement analysis discussed in Section VIII.
VII. Quantification of Price Erosion Damages
A. Methodology
The quantification of price erosion damages proceeds by calculating the difference between (a) the actual revenue OWS earned on its retained sales of the OWS-400ZR during the measurement period and (b) the revenue OWS would have earned on those same retained sales at the "but for" pricing levels that would have prevailed absent Lumicore's infringing entry.
The "but for" pricing levels are derived by applying the expected normal price decline trajectory of 5–8% over the six-quarter measurement period to the Q2 2022 baseline ASP of $1,251 per unit. This produces a "but for" ASP range in each quarter that reflects what OWS would have charged had pricing followed its natural trajectory without the competitive disruption caused by the LumiLink 400G-ZR+.
The price differential in each quarter (i.e., the difference between the "but for" ASP and the actual ASP) is then multiplied by OWS's retained unit volumes for that quarter to calculate the incremental revenue lost due to price erosion. This calculation is performed on a quarter-by-quarter basis from Q3 2022 through Q4 2023 for historical damages, and projected forward from Q1 2024 through Q4 2025 for the forward-looking damages estimate through the anticipated trial date.
It is important to note that this methodology captures only the harm on retained sales — that is, sales that OWS actually made but at depressed prices. The harm from lost sales — that is, sales that OWS would have made but for Lumicore's infringement — is captured separately in the Panduit lost-profits analysis. The price erosion damages are therefore additive to, and not duplicative of, the lost-unit-volume damages.
B. Historical Price Erosion Damages (Q3 2022 – Q4 2023)
Applying the methodology described above to OWS's actual retained unit volumes and comparing actual ASPs to the "but for" ASP trajectory, the estimated incremental revenue lost due to price erosion on OWS's retained sales during the six-quarter period from Q3 2022 through Q4 2023 is approximately $38.4 to $47.2 million, depending on whether the lower bound (5% normal decline) or upper bound (8% normal decline) of the expected secular price decline trajectory is applied.
Using the midpoint estimate of 6.5% as the expected normal decline (consistent with the historical average for prior-generation products and OWS's own pre-entry decline rate), the estimated historical price erosion damages are approximately $42.8 million.
This figure reflects the cumulative revenue shortfall across all quarters of the measurement period, weighted by quarterly unit volumes. The majority of the damage is concentrated in the latter quarters of the measurement period (Q3 and Q4 2023), when the gap between actual and "but for" pricing was widest and OWS's retained unit volumes remained substantial.
This $42.8 million figure is additive to the lost-unit-volume damages captured in the Panduit analysis and represents the incremental harm from margin compression on OWS's retained 400G-ZR business.
C. Projected Price Erosion Damages (Q1 2024 – Q4 2025)
The analysis projects continued price erosion through the anticipated trial date of February 2, 2026 (with damages calculated through Q4 2025 for purposes of this analysis). Forward-looking projections are based on the following assumptions:
• Lumicore continues to sell the accused products at current volume trajectories, absent an injunction.
• OWS's ASPs remain depressed at or near the Q4 2023 level ($1,017 per unit), with modest additional secular decline of approximately 3–4% annualized.
• "But for" pricing continues on its normal decline trajectory from the Q4 2023 "but for" level of approximately $1,151–$1,188 per unit, declining at a continued rate of approximately 5–8% annualized.
• OWS's retained unit volumes remain approximately constant at Q4 2023 levels, adjusted modestly for expected market growth.
Dr. Lawrence Keating's preliminary analysis projects total accused-product revenue across all three Lumicore accused products from Q3 2022 through Q4 2025 to be approximately $714.6 million. Based on the forward-looking ASP assumptions described above, the estimated projected price erosion damages for the period Q1 2024 through Q4 2025 are approximately $52.6 to $64.8 million, with a midpoint estimate of approximately $58.7 million.
This forward-looking estimate is necessarily more uncertain than the historical estimate, as it depends on projections of future pricing and volume dynamics. The estimate will be refined as FY 2024 actual revenue data is obtained from Lumicore's supplemental discovery production, anticipated in connection with the Damages Update Memorandum targeted for February 2025.
D. Total Price Erosion Damages
The total price erosion damages, combining the historical and projected components, are estimated as follows:
These figures represent the total incremental revenue loss attributable to price erosion on OWS's retained sales. However, it is important to understand how these figures integrate into the overall damages model.
The $210 million aggregate damages demand asserted in the complaint is a blended, rounded figure incorporating three components:
1. Lost Profits under Panduit (approximately $128.9 million): Calculated as $714.6 million (projected accused-product revenue) × 38.2% (market-share displacement rate) × 47.3% (OWS gross margin on competing products). This figure captures the profits OWS would have earned on sales lost entirely to Lumicore.
2. Reasonable Royalty under Georgia-Pacific (approximately $37.5 million): Calculated as ($714.6M − $714.6M × 38.2%) × 8.5% = $441.6M × 8.5% ≈ $37.5 million. This figure applies the 8.5% royalty rate to the portion of Lumicore's accused-product revenue that does not correspond to OWS's lost sales.
3. Enhanced Damages for Willful Infringement (approximately $43.6 million): Reflecting the application of an enhancement multiplier to post-notice lost profits, as supported by the Read factor analysis and the willful infringement memorandum.
Price erosion is subsumed within and supports the lost-profits component of this demand. Specifically, the lost-profits figure of $128.9 million is calculated using OWS's pre-erosion gross margin of 47.3%, which assumes that retained sales would have been made at "but for" pricing levels. The price erosion analysis demonstrates that even on the 61.8% of sales OWS retained (i.e., the portion not displaced by Lumicore), margins were compressed below the 47.3% baseline due to competitive pricing pressure. The price erosion damages quantify this margin compression and ensure that the overall damages model captures the full scope of economic harm.
E. Interaction with Gross Margin Analysis
OWS's gross margin on competing products in the "but for" world — that is, the margin OWS would have earned absent Lumicore's infringing entry — is 47.3%, as established in the Panduit factor analysis. This margin figure is derived from OWS's cost structure and the "but for" pricing levels that would have prevailed in the absence of Lumicore's competitive pressure.
Price erosion reduces the effective gross margin on retained sales below the 47.3% baseline. As ASPs declined from the "but for" level while OWS's cost structure remained largely constant (manufacturing costs for the OWS-400ZR are primarily driven by wafer fabrication and packaging costs that do not decline in proportion to ASP reductions), the per-unit margin on each retained sale was compressed.
At the midpoint estimate of price erosion, the effective gross margin on retained sales by Q4 2023 had declined from 47.3% to approximately 39.8%, representing a margin-compression effect of approximately 7.5 percentage points. Over the full measurement period, this margin compression translates to the $42.8 million in historical price erosion damages described above.
The amplification effect is significant: because OWS's retained unit volumes remained substantial throughout the measurement period, even modest per-unit margin compression compounds into material aggregate damage. This underscores the importance of analyzing price erosion as a distinct damages category, separate from and additive to lost unit-volume damages.
VIII. Willful Infringement and Price Erosion
A. Post-Notice Acceleration of Harm
The price erosion documented in this analysis was not only foreseeable to Lumicore — it continued and intensified after Lumicore received actual notice of OWS's patent rights. The timeline of notice events is as follows:
January 15, 2023 — First Notice Letter. FairPoint Licensing Group, LLC (Managing Director: Angela Reeves), acting on behalf of OWS, sent a licensing and notice letter to Lumicore's General Counsel, Raymond Bautista, identifying U.S. Patent Nos. 10,234,847 ('847 Patent), 10,891,193 ('193 Patent), and 9,678,562 ('562 Patent). The letter identified the LumiLink 400G-ZR+ as an accused product and invited Lumicore to enter into licensing negotiations.
April 20, 2023 — In-Person Licensing Meeting. An in-person licensing meeting was held in Austin, Texas, attended by Angela Reeves and Rebecca Tanaka of FairPoint Licensing Group, LLC, Raymond Bautista of Lumicore, and Kate Rourke of Hawthorne Vega & Cruz LLP (outside patent counsel for Lumicore). According to Ms. Reeves, Lumicore showed "no interest in negotiating" a license and did not engage substantively with the claim charts or technical analysis presented by FairPoint.
May 15, 2023 — Second Notice Letter. FairPoint sent a second licensing letter to Mr. Bautista, adding U.S. Patent No. 11,402,015 (the "'015 Patent") to the list of asserted patents and expanding the list of accused products to include the LumiLink 800G-DR8 (launched Q1 2023).
July 10, 2023 — Lumicore Declines License. Lumicore formally declined to take a license, citing "competent legal opinions" that its products do not infringe the identified patents. Lumicore has not produced these opinion letters in discovery; this refusal is the subject of a pending Motion to Compel (D.E. 38), which remains under advisement by the Court.
Despite this extensive notice of OWS's patent rights, Lumicore continued to sell the LumiLink 400G-ZR+ at increasing volumes throughout 2023 and launched two additional accused products — the LumiLink 800G-DR8 (which was already on the market at the time of the first notice letter) and the LumiEdge 1600G-LR (launched in Q4 2023, more than nine months after the first notice letter and more than five months after Lumicore formally declined to take a license). The launch of the LumiEdge 1600G-LR is particularly significant: it demonstrates that Lumicore made a deliberate business decision to introduce a new product incorporating the same patented technology even after receiving multiple notices of infringement, participating in an in-person licensing meeting, and formally declining to take a license. As confirmed by Mr. Bautista's December 3, 2024 deposition testimony, no formal design-around analysis was commissioned before the LumiEdge 1600G-LR launch.
The price erosion in the post-notice period (January 2023 onward) was more severe than in the initial Q3–Q4 2022 period. The cumulative ASP decline from Q2 2022 was approximately 7.5% by Q4 2022 (before notice); it then accelerated to 18.7% by Q4 2023, with the bulk of the additional decline occurring in the post-notice period. Lumicore's decision to continue and expand its infringing activities after notice directly caused this intensification of price erosion.
B. Relevance to Enhanced Damages
The post-notice continuation and acceleration of price erosion is directly relevant to OWS's claim for enhanced damages under 35 U.S.C. § 284, as interpreted by the Supreme Court in Halo Electronics, Inc. v. Pulse Electronics, Inc., 579 U.S. 93 (2016). Post-notice lost profits from January 2023 onward are estimated at approximately $109.2 million (for purposes of the enhanced damages calculation), and price erosion damages in the post-notice period account for a substantial majority of the total price erosion damages quantified in this analysis.
The price erosion evidence demonstrates that Lumicore's post-notice conduct was not merely negligent or borderline — it was affirmatively aggressive. Lumicore not only continued selling existing accused products at increasing volumes but launched a new accused product line (the LumiEdge 1600G-LR) after receiving formal notice and declining a license, all while knowing that its pricing strategy was inflicting ongoing competitive harm on OWS. This pattern of conduct satisfies the Halo standard for "egregious" behavior warranting enhancement and supports the application of an enhancement multiplier to the damages award.
The willful infringement analysis, including the full Read factor evaluation, is set forth in the separate Willful Infringement Memorandum prepared by the litigation team. The price erosion evidence should be cross-referenced to and incorporated into that memorandum and into any motion for enhanced damages filed with the Court.
IX. Rebuttal of Anticipated Counterarguments
A. Industry-Wide Price Declines
Lumicore is expected to argue — likely through its retained damages expert, Dr. Natasha Volkov of Pinnacle Analytics Partners LLP — that the decline in 400G-ZR transceiver ASPs during the measurement period is an industry-wide phenomenon driven by secular market forces, and that it is unrelated to, or at most only marginally related to, Lumicore's entry with the LumiLink 400G-ZR+.
Rebuttal. This argument conflates two distinct phenomena: normal, secular price declines (which occur in every transceiver product generation and are accounted for in the analysis) and excess price erosion caused by the entry of a new competitor using infringing technology. The regression analysis conducted for this memorandum controls for general industry trends, product maturity effects, and volume-scaling dynamics. After controlling for these factors, the acceleration in price decline that began in Q3 2022 remains statistically significant and is not explained by secular trends alone.
Specifically, the expected normal price decline over the six-quarter measurement period was approximately 5–8%, based on historical data from prior-generation products and corroborated by industry analyst projections. The actual decline of 18.7% exceeds the expected range by 10.7 to 13.7 percentage points. This excess is temporally and causally linked to Lumicore's entry and cannot be attributed to industry-wide forces that were already present and accounted for in the pre-entry baseline. The pre-entry period itself demonstrates that these secular forces were producing a stable, moderate rate of decline of approximately 5.2% annualized — not the dramatically accelerated decline observed after Q3 2022.
Moreover, the customer-level analysis in Section V demonstrates that specific price concessions were triggered by specific competitive bids from Lumicore, not by generalized industry trends. OWS's internal sales records and communications provide direct evidence that pricing decisions were made in response to Lumicore's competitive offers, establishing a causal mechanism that goes beyond statistical correlation.
B. Customer Bargaining Power
Lumicore may argue that hyperscale data-center customers possess inherent bargaining power that drives down supplier ASPs regardless of the number of competitors in the market, and that the observed price declines reflect the exercise of this bargaining power rather than the competitive impact of any single entrant.
Rebuttal. While it is true that hyperscale customers exert significant bargaining leverage in procurement negotiations, the evidence demonstrates that the price concessions OWS was forced to grant during the measurement period were specifically tied to competitive bids from Lumicore, not to the general exercise of customer bargaining power.
The critical evidence is the before-and-after comparison: during the pre-entry period (Q1–Q2 2022), the same hyperscale customers were purchasing the same OWS-400ZR product, and they possessed the same bargaining power. Yet ASPs declined at a moderate, stable rate consistent with normal industry trends. The sharp acceleration in price decline beginning in Q3 2022 cannot be explained by a change in customer bargaining power, because that power did not change; what changed was the competitive landscape, specifically the addition of Lumicore as a viable alternative supplier offering a 400G-ZR product at aggressively competitive prices.
OWS's customer-level sales records confirm this conclusion. Internal communications from OWS sales teams consistently identify Lumicore competitive bids — not general customer pressure — as the proximate cause of price concessions. Multiple OWS account managers specifically referenced Lumicore quotes or Lumicore design-in awards as the reason for escalating pricing approvals to management.
C. Non-Accused Competitors
Lumicore may also argue that other suppliers — the two incumbent competitors that were already present in the 400G-ZR market before Lumicore's entry — were the cause of, or significant contributors to, the observed price erosion.
Rebuttal. The market analysis conducted for the market-share displacement study and confirmed by publicly available industry data shows that no new entrants other than Lumicore entered the 400G-ZR transceiver market with comparable silicon-photonics products during the Q3 2022 through Q4 2023 measurement period. The two pre-existing incumbent suppliers maintained relatively stable pricing and market share throughout this period; their competitive behavior did not change materially in a manner that would explain the observed acceleration in price decline.
Furthermore, the two incumbents' products do not offer the same combination of performance and cost advantages as the LumiLink 400G-ZR+ because they do not practice OWS's patented technology. The unique combination of the patented waveguide multiplexer structures and thermal management micro-channels is what enabled Lumicore to offer a differentiated price-performance proposition that disrupted the competitive equilibrium. The pre-existing incumbents, lacking these patented features, did not exert the type of sudden, disruptive pricing pressure that Lumicore was able to bring to bear.
The temporal evidence is dispositive: the price decline acceleration coincides with Lumicore's entry, not with any change in the competitive behavior of pre-existing incumbents. There is no evidence that either incumbent launched a new product, implemented a new pricing strategy, or otherwise changed its competitive approach in a manner that would account for the observed acceleration.
X. Integration with Other Damages Analyses
A. Relationship to Lost Profits (Panduit Analysis)
The lost-profits analysis under the Panduit framework focuses on lost unit sales — that is, sales that Lumicore made with the accused products that OWS would have made but for Lumicore's infringing entry. The lost-profits calculation is:
$714.6 million (projected accused-product revenue, Q3 2022 – Q4 2025) × 38.2% (market-share displacement rate) × 47.3% (OWS gross margin on competing products) = approximately $128.9 million.
Price erosion captures a distinct and additive category of harm: margin compression on the sales OWS retained but at lower prices. The lost-profits calculation assumes that OWS would have earned a 47.3%

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