Forward Software
INTRODUCTION
Forward software introduced a spreadsheet product, Cinco into the market, which is highly dominated by Focus software with its product Focus A-B-C because of its symbiotic relationship with IBM personal computers. Cinco has better graphics, compatibility with Focus software and an intuitive arrangement of options. Discount Software, another firm released a product called VIP Scheduler whose functionalities are also similar to that of Focus A-B-C but at a much cheaper price. However Focus claimed the VIP scheduler a copyright infringement and sued Discount software claiming similarity in the look and feel of the product with its own.
Sam Ellis, president and CEO of Forward software grasped that the target of Focus software is not Discount software which has a minor market share but Cinco. Sam Ellis can either settle outside the court before it is sued by Focus Software or can make a decision on whether to go ahead with court proceedings or settle after they are sued at a later stage. Below are the probabilities associated with each scenario
Making an overture to settle outside court: According to Forward Software’s attorneys, Focus Software could claim for $5, $8, or $12 million in damages with probabilities 0.5, 0.3 and 0.2 respectively. Attorney fee of $1 million needs to be paid extra.
Probability distribution of Forward suing Focus, if Focus wins against Discount is given below along with the probability distributing of Focus winning over Discount software.
If Forward Software is charged with copyright infringement, it faces two options:
Probabilty distribution if Forward wins against Discount
Forward sued by Focus
Forward not sued by focus
Probabilty distribution of trial between Focus & Discount Software
Focus Wins
Focus Looses
Settle out of Court
Forward Software looses $8, $11 or $15 million with probabilities 0.3, 0.4 and 0.3 and the attorney fee would cost $1.2 million
Face trials in Court
Forward Software, Inc can win with a probability of 0.2 paying only $2.5 million in attorney fees
If they lose they will have to pay in damages a sum of $8, $16 or $18 million with probabilities 0.1, 0.3 and 0.6 respectively along with attorney fees of $2.5 million
Problem statement
Given the situation that Focus software sued Discount software for copyright infringement, what must be Sam’s strategy if Focus software tries to sue Forward software and what is the expected cost of the strategy?
Also Sam needs to