Gillette vs.
Energizer
One of the more difficult decisions a manager may face is whether to file a lawsuit or whether (and
how) to settle a lawsuit. These decisions require careful consideration of a number of uncertainties:
• If you go to court, will you win or lose?
• If you do win or lose, what damages will be awarded?
• How will a legal victory or loss affect your future business?
• How much will it cost to litigate?
In this case, we consider the use of decision tree analysis as a logical process for organizing and
integrating the legal and business judgments involved in evaluating litigation strategy.
Assignment: Build a decision tree model to analyze Gillette's settlement decision. Use the techniques
that we have studied – decision trees, sensitivity analysis, value of information analysis, and utility
theory – to analyze this decision.
For this assignment work with teammates, and have a joint submission. Each group should prepare a
PowerPoint presentation describing their analysis and recommendations. You should take your
audience to be senior management at Gillette: you should assume that the audience is familiar with
the facts of the case and understands decision tree analysis.
Deliverables:
Please submit an electronic copy of your presentation and your spreadsheet model. You need only
submit one electronic copy for each group; please be sure to indicate your teammates in the text
description associated with the file.
Some hints on the case:
• You should think about ways to keep your decision tree readable and not a "bushy mess."
Specifically, your main decision tree need not include all of the detail given in Figure 3: you can
use the information in Figure 3 to calculate the probability that the patent is found valid and use
this overall probability in your tree. With this simplification, your decision tree would include
detail at the level of Figure 2, but not at the level of Figure 3. This simpler tree will be much easier
to explain and work with.
• You may need to use some judgment in answering some of the questions in the case and/or in
doing sensitivity analysis. This is fine. However, I do not want you to do additional research (e.g.,
performing web searches, consulting lawyers or managers at Gillette or Energizer) to revise,
update, or refine the facts given in the case.
Gillette vs. Energizer1
In August of 2003, the Gillette Company, the manufacturer of the popular Mach3 razor, filed a patent
infringement suit against Energizer Holdings, Inc. asserting that their new Schick Quattro razor
infringes on one of Gillette's patents. The patent in question covers "progressive blade geometry,"
which means positioning multiple blades on a razor such that the blades are progressively closer to the
skin. Gillette patented this technology and uses this progressive blade geometry in its Mach3 and
Mach3Turbo razors for men and the Venus razor for women.
The progressive geometry patent (United States Patent No. 6,212,777 or the '777 patent) was granted
to Bernard Gilder and John Terry of the Gillette Company on April 10, 2001, approximately five years
after it was filed. The patent’s first claim describes the "progressive blade geometry" as:
A safety razor blade unit comprising a guard, a cap, and a group of first, second, and third
blades with parallel sharpened edges located between the guard and cap, the first blade
defining a blade edge nearest the guard having negative exposure not less than -0.2mm and
the third blade defining a blade edge nearest the cap having a positive exposure of not greater
than 0.2mm, said second blade defining a blade edge having an exposure not less than the
exposure of the first blade and not greater than the exposure of the third blade.
According to the patent, with such a configuration, "the frictional drag forces can be kept at an
acceptable level, while allowing an improved shaving efficiency." See Figure 1 (from Gillette's patent
filing) for an illustration of the progressive blade geometry.
Figure 1: Gillette's patented progressive blade geometry
In 2003, Gillette had about a 70 percent market share of the $1.7 billion American razor market
(Schick's share was approximately 13 percent). Sales of Mach3 and Mach3Turbo razors and blades
then totaled about $318 million annually. In January of 2005, it was announced that Gillette would be
1
This case was written by Jim Smith, Fuqua School of Business, Duke University in December 2004 with the
assistance of Marc Victor, President of Litigation Risk Analysis, Inc.; the case was revised in 2010, 2011 and 2015.
The facts of this case are based on various published discussions of the Gillette vs. Energizer lawsuit as well as
legal filings related to the case. The probabilities and cost/damage estimates included here were developed for
classroom purposes and do not represent the views of any parties involved in this litigation. Ross Christie
(Fuqua, WEMBA 2015) provided helpful expert feedback on the legal issues in the case.
2
acquired by Proctor and Gamble (P&G) for $57 billion. P&G had a market capitalization of about $135
billion at that time. The acquisition would be finalized towards the end of 2005.
Energizer acquired Schick-Wilkinson Sword from Pfizer in March of 2003 for $930 million and would
introduce the Quattro razor with much fanfare in September of 2003. Gillette's lawsuit was filed just
before the launch of the Quattro and seeks an injunction to stop the sale of Quattro razors as well as
damages for lost profits and legal expenses. Energizer argues that they have not infringed on Gillette's
patent, saying that the patent doesn't anticipate more than three blades and that the four blades in
the Quattro razor do not have this progressive geometry: Quattro's first blade is farthest from the skin
and its fourth blade is closest, but the middle two blades are at the same level. Energizer also argues
that Gillette's patent should be declared invalid because the progressive geometry was "obvious"
given the prior art, some of which was not properly disclosed to the Patent Office when filing for the
patent.
In January of 2004, Judge Patti Saris of the U.S. District Court in Massachusetts denied Gillette's
request for a preliminary injunction that would have halted sales of the Quattro razor, before
proceeding to jury trial. Saris concluded that Gillette had not established that it had a "reasonable
likelihood of success on the claim of literal infringement." While this ruling clearly favors Energizer,
this setback does not prevent Gillette from continuing its lawsuit nor does it imply that Gillette will
lose the suit if they pursue it. As Saris noted in her decision, such a preliminary injunction would have
been a "drastic and extraordinary remedy" and such injunctions "are not routinely granted."
Moreover, Judge Saris considered only Gillette's accusation of "literal infringement," which requires
the device to have directly copied each element of a patent's claim. A weaker "doctrine of
equivalents" requires only that the patented invention is replicated in a product that function in
substantially the same way and yields substantially the same result. In a statement following Judge
Saris' ruling, Gillette said: "We have been consistent in our rigorous defense of our intellectual
property and we do not intend to abandon these claims based on this interim ruling. Therefore,
Gillette intends to both contest this decision and to continue the related litigation."
In this case, we will consider Gillette's decision to continue to pursue the patent infringement lawsuit
or consider a settlement with Energizer that was offered in April of 2005. There are four key issues to
consider: the legal issues in the case, the damages that would be awarded if the jury finds
infringement of a valid patent, the business impact of eliminating Quattro from the market if the
injunction is granted, and, finally, the potential consequences of losing the lawsuit.
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Legal Uncertainties
There are two key legal issues in the case: First, is Gillette's patent valid? Second, if so, did Energizer
infringe on Gillette's patent? Both elements are required in order for damages to be awarded and the
injunction granted, as shown in Figure 2. These issues would be decided in a jury trial.
Jury Finds Jury Finds
Patent Infringed
Damages and
Injunction
Patent Valid
Not Infringed
No Damages or
Injunction
Not Valid
No Damages or
Injunction
Figure 2: Key patent uncertainties
Gillette's lawyers found it difficult to directly specify probabilities for the jury's conclusion on validity
and infringement. Instead, they found it easier to decompose these assessments and think about the
key arguments and uncertainties underlying the validity and infringement issues.
Validity. In order for a patent to be granted, the claimed invention must be "nonobvious" to a person
having "ordinary skill in the art at the time the invention was made." The initial determination of
whether a claimed invention is nonobvious is made by a Patent Examiner, reviewing the patent
application. However, once the claimed invention is found allowable and the patent is granted, its
validity may be challenged in court on the grounds that the Patent Office made a mistake on the
question of nonobviousness.2
Privately, Gillette was deeply concerned about Energizer's challenge to the validity of the '777 patent.
The patent examiner who initially examined Gillette's patent application had rejected it. In the
examiner's view, prior patents had "taught the lessons" of three-blade razor systems (in a 1992 patent
awarded to Gilder, one of the named inventors on '777 patent) and of progressive geometry (in the
1972 "Welsh Patent"), albeit for two-blade systems. The examiner wrote in his rejection:
Welsh [the 1972 Welsh Patent] teaches that it is well known for razors having multiple blades
to have the amount of exposure increase as you go from the first blade to the last blade. … It
would have been obvious to one of ordinary skill in the art to have modified [the 1992 Gilder
2
The '777 patent contains 15 claimed inventions (claims), all of which depend on the first claim describing the progressive
geometry (quoted above), which is the focus on the lawsuit. These other claims concern the distance of the blades from each
other and from the guard and cap and all depend on the first claim. In patent law, if a claim is found to be invalid, then all
claims that depend on the invalid claim are also rendered invalid. Thus, the entire '777 patent will be invalid if the first claim
of the '777 patent is found to be invalid.
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patent] by making the first blade have a negative exposure and the third blade have a positive
exposure such that the exposure increases as you go from the first blade to the last blade, as
taught by Welsh, in order to achieve the "highly satisfactory results" mentioned by Welsh.
Gillette appealed the examiner’s rejection to the Board of Patent Appeals, arguing that the prior
patents had not considered the specific configuration (first blade having a negative exposure and later
blade(s) having a positive exposure) considered in the '777 patent. Gillette's arguments persuaded the
Board of Appeals to reverse the examiner's rejection, with the Board of Appeals saying that the Welsh
patent did not consider "a combination of positive and negative blade exposures for a given unit."
In the current case, Energizer argues that the negative-to-positive combination of blade exposures that
the Board of Appeals thought was missing in the prior art was indeed well known at the time, though
in work that Gillette had failed to cite during the examination of the '777 patent application.
Specifically, a 1982 patent owned by Gillette considered a two-blade razor system with adjustable
blade positions that had this negative-to-positive combination of exposures when set at its lowest
position. Moreover, Gillette's flagship two-blade razor, the Sensor, introduced in 1990, had this
negative-to-positive combination of exposures. Energizer argued that Gillette was negligent in its
"duty of candor" requiring disclosure of information known to be material to the patentability of the
claimed invention. Had Gillette properly disclosed this prior art, Energizer argues that the Board of
Appeals would have concluded that the invention claimed in the '777 patent was obvious and would
have never granted the patent.
Gillette disputes the relevance of this prior art, arguing that adding a third blade to a two-blade system
is not as easy as it may sound (many previous attempts had failed) and, furthermore, that when
exposures are properly measured with respect to the blade caps and guards (as in the '777) patent,
these prior two-blade systems do not possess the claimed negative-to-positive configuration.
Energizer sought testimony from Bernard Gilder, who was one of the named inventors on the '777
patent as well as the inventor on several related prior patents, including the three-bladed razor patent
cited by the examiner in his rejection. Gilder retired from Gillette in 2000 and lived in England. Gilder
had voluntarily provided testimony (by video-recorded deposition) to Energizer previously in this case,
but had refused requests to provide further testimony. Gillette argued that they had no control over
Gilder and Gilder's lawyers argued that, as a citizen of England, the U.S. courts had no jurisdiction over
him. Moreover, according to Gilder's lawyers, "Mr. Gilder found the questioning during his deposition
to be upsetting, stressful and it caused him to experience difficulty in sleeping for several days."
Energizer had asked the U.S. court to issue a "letter of request" to the English courts to require Gilder
to provide testimony in England, pursuant to the 1970 Hague Convention agreement on taking
testimony abroad in civil or commercial matters. It is not clear whether the U.S. court would issue this
letter of request or whether the request would be granted by the English courts.
Gillette was concerned that Gilder's testimony could be damaging. Gillette had experimented with
three-blade razors possessing various geometries as early as the 1970s and Gilder was deeply involved
in this work. In short, Gillette feared that Gilder's testimony may give the jury the impression that the
invention described in the '777 patent was indeed obvious at the time the patent was filed. On the
other hand, there is some chance that Gilder's testimony would convince jurors that there was indeed
a nonobvious element associated with the '777 patent claim, thereby solidifying the validity of the
patent in the eyes of the jury. The jury would have to wrestle with these questions even if Gilder does
not testify, but Gillette felt Gilder's testimony could be pivotal in this regard.
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If this case goes to trial, the arguments promised to be highly technical and the debate may confuse
and/or frustrate jurors. It is difficult to predict how the jury would react to such technical arguments.
Gillette’s lawyers assigned probabilities for these key uncertainties as shown in Figure 3. The
probability of the patent being found valid (62.5%) without Gilder testifying is the average of
probabilities given by several of Gillette’s lawyers, as well as outside counsel. The other probabilities
were assigned by Gillette’s legal team alone.
Does the jury think the
benefits of the
progressive geometry is
obvious from prior Does jury conclude that
Does Gilder testify? work? the patent is valid?
62.5% Patent Valid
50% Gilder Does Not Testify - Jury reluctant to second-
guess the Patent Office
- US or English courts - Never resolved
conclude that Energizer
has already had their
37.5% Patent Invalid
chance to depose Mr.
Gilder. - Jury views invention as
- Such depositions are obvious extension of two-
unusual in English bladed geometry and/or
courts - Jury penalizing Gillette
for incomplete disclosure
15% Patent Valid
Benefits of geometry
60% were obvious - Patent office thought
novel; jury reluctant to
doubt them..
- If Gilder was aware of
benefits from other 85% Patent Invalid
other work
- Geometry used in Jury views invention as
50% Gilder Testifies early three-blade obvious, given full
prototypes by Gilder
disclosure of prior art.
and others
- US and English
courts view testimony 90% Patent Valid
as appropriate and
reasonable to request 40% Benefits not obvious - Jury still views three-
- ... blade progressive
geometry as inventive
- Relevance to three-
blade razors not 10% Patent Invalid
realized.
- Important subtleties
with third blade - Jury views invention as
obvious extension of two-
bladedgeometry
- Jury penalizing Gillette
for incomplete disclosure
Figure 3: Gillette's assessments of validity issues
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Infringement. With regards to infringement, as discussed earlier, patent infringement can be
established in two ways, either through "literal infringement" or the weaker "doctrine of equivalents."
Either finding constitutes infringement and leads to damages. Gillette would make both arguments to
the jury, hoping to convince the jury to accept one. Literal infringement would require the Quattro
razor to have copied each element of the patent’s claim. Given that Gillette's patent specifically refers
to a razor with three blades, Gillette's lawyers thought it was unlikely that the jury would find literal
infringement. Judge Saris was quite critical of Gillette's arguments for literal infringement in her
decision, though a jury might view this differently. Gillette's lawyers assigned a 10% probability to the
jury finding literal infringement.
If the jury does not find literal infringement, it would then consider infringement under the doctrine of
equivalents. Under the doctrine of equivalents, a device may be found to be infringing if the accused
device
(a) performs substantially the same function
(b) in substantially the same way
(c) to yield substantially the same result
as described in the patent claim in question. Gillette thought the condition (a) ("performs substantially
the same function") would certainly be satisfied in this case, as the two razor designs are both
intended to provide a close, comfortable and efficient shave.
Gillette thought it would likely be able to convince the jury that the two designs "yield substantially
the same result," (element (c) above) as the two razors perform similarly in tests. Gillette's lawyers
assigned a probability of .9 to convincing the jury of this.
The "function in substantially the same way" element (element (b) above) of the doctrine of
equivalents would be more difficult to establish. Quattro's design clearly contains elements of
Gillette's progressive geometry in that the four blades are positioned progressively closer to the skin.
But the facts that the Quattro has four blades rather than three and that the second and third blades
are at the same height will make it harder to argue that they "function in substantially the same way."
In some respects, this issue is a battle of words, hinging on the meaning of words such as "blade."
When arguing for literal infringement, Gillette argued that Quattro's razor had two "second" blades;
some observers (including Judge Saris) scoffed at this interpretation. However, in Gillette's favor, in
patent infringement cases, additions to a patented invention are typically still viewed as infringing. To
not infringe, the new device has to take something away from what is specified in the patent and/or
replace it with something else. Here, Gillette argues, Schick simply added a fourth blade to their
patented design. Nevertheless, Gillette's lawyers were not confident they would win these arguments
and assigned a 50% probability to convincing the jury that the two razors "function in substantially the
same way," as required in element (b) of the doctrine of equivalents.3
3The probability assessments for the doctrine of equivalents are conditioned on the assumption that the jury does not find
literal infringement; if the jury finds literal infringement, they would not need to consider the doctrine of equivalents
argument. You may assume that the jury's findings on "functions in substantially the way" and "yield substantially the same
result" elements of the doctrine of equivalents are independent events.
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Damage Awards
If the jury finds that the Quattro did indeed infringe on Gillette's patents, Energizer will be required to
remove the Quattro from the market and pay damages to compensate Gillette for lost profits while
Quattro was on the market. Gillette argues that the sales of the Quattro razors have come at the
expense of sales of its Mach3 line of razors and that Quattro's gain in sales is entirely due to Quattro's
use of Gillette's patented technology. Using this argument and current sales forecasts, Gillette
estimates that they would seek damages of $50 million, assuming the trial is held in about two years.
This amount is stated in present value terms. To argue for a lower damage assessment, Energizer
would likely argue that the sales of the Quattro are due to its advertising and otherwise superior
product, rather than the positioning of the blades on its razors. After hearing these arguments, the
jury will decide how much to award for lost profits.
Rather than asking to estimate damages based on lost profits, the judge may view such arguments as
too speculative and instead ask the jury to decide what would have been a reasonable royalty if the
patent had been licensed to Energizer. Royalties on other features of disposable razors are typically 2-
3% of sales, which would translate to a damage assessment in the $18 to $27 million range (in present
value). Gillette's lawyers' probabilities for the various damage assessments are illustrated in Figure 4.
10% Jury buys Gillette's argument
$50 Million
Judge allows damages
40% based on lost profits 60% Jury "splits difference"
$30 Million
30% Jury buys Energizer's argument
$10 Million
80% Jury awards 3% Royalty
Judge requires damages $27 Million
60% based on royalties
20% Jury awards 2% Royalty
$18 Million
Figure 4: Possible damage assessments
Though Gillette had asked to be reimbursed for legal fees in its lawsuit, Gillette's lawyers did not
actually expect these to be awarded. Legal fees are awarded only in "exceptional cases" (such as
willful infringement or misconduct during litigation). Gillette's lawyers did not think they could
successfully argue that such exceptional circumstances exist in this case.
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Business Impacts of a Gillette Victory
In addition to the damages awarded if Gillette wins the lawsuit, Gillette would benefit from the
Quattro being removed from the market. In this scenario, Energizer would probably develop and
market a different premium razor, either a modified version of the Quattro that does not use the
progressive blade geometry or some other razor with a new design. It would, however, take Energizer
some time to develop a new razor and bring it to market. In the meantime, Gillette would benefit
from the lack of competition in the premium razor market. They should be able to recapture some of
the market lost to the Quattro (or avoid future losses) and to avoid expensive promotions or
discounting of the Mach3 product.
It is not clear how far along Energizer is in developing alternative premium razor designs. Gillette's
management believes that Energizer has probably already developed razors that it would bring to
market if it loses the lawsuit. In this case, Gillette would enjoy a less than one year hiatus from
competition that their marketing staff estimates would be worth about $50 million in present value to
Gillette. On the other hand, if Energizer does not have a new non-infringing product ready, Gillette
may enjoy a hiatus approaching two years, worth about $90 million in present value. The probabilities
for these two scenarios are shown in Figure 5.
2-year Hiatus from
30% Competition
$90 million
1-year Hiatus from
70% Competition
$50 million
Figure 5: Assessment of the potential
market impact of legal victory
Impacts of a Gillette Loss
If Gillette loses the lawsuit, they will not receive any damages, there would be no injunction against
the Quattro, and Gillette would not enjoy the benefits of reduced competition in the premium razor
market. It is not clear what the other impacts of Gillette losing would be. If the patent were found to
be invalid, this would allow Gillette's competitors to use the progressive blade geometry in their
razors, without paying a royalty and without concern about infringing on Gillette's patent. For
example, Energizer might release a "new and improved" version of the Quattro with the progressive
blade geometry (e.g., with the two middle blades at different heights). Generic razor manufacturers
could also adopt this technology and consequently be better able to compete with Gillette's premium
razors. Gillette's marketing staff estimates that the loss of patent protection on the progressive blade
geometry would have a negative $20 million NPV impact on Gillette. However, the marketing staff
cautioned that this was a very rough estimate of the impact of such a loss.
9
On the other hand, if the patent were found to be valid but the Quattro design is found to be not
infringing on the patent, competitors could adopt Quattro's design or variations thereof without
infringing on Gillette's patent. This would be bad for Gillette, but not as bad as having the patent
declared invalid. The marketing staff estimated the loss in this scenario to be about $8 million in NPV
terms; this was also a rough estimate.
Settlement Decision
The legal proceedings associated with this case promise to be expensive and time consuming for both
Gillette and Energizer. Gillette estimates that the cost of continuing this litigation through trial to be
approximately $6.5 million; this figure includes attorney's fees, expert fees, as well as the cost of the
time of management and staff will have to spend on matters related to the lawsuit. (This figure does
not include money already spent on the lawsuit.)
In April of 2005, shortly after the announcement of the P&G acquisition, Energizer approached Gillette
privately and offered to settle the lawsuit for $4.5 million. This settlement offer would be a one-time
cash royalty payment to Gillette that would require Gillette to drop the lawsuit and grant Energizer a
license to use Gillette's patented technology in the Quattro razor, with its current design. Such a
license granted to Energizer would not give other competitors permission to use Gillette's patented
progressive geometry design or Quattro's variation on it.
While Gillette's initial response to this offer was cool, privately Gillette senior management wondered
whether they should accept this offer or continue to litigate. Is settling worth more than litigating?
How risky would it be to litigate? What are the key issues and uncertainties that affect this decision?
Though P&G's acquisition of Gillette had not been finalized, incoming P&G management wanted to
better understand these issues as well.
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