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24 September 2018Patents

Fed Circuit vacates $140m award in ‘entire market value’ appeal

The US Court of Appeals for the Federal Circuit has vacated and remanded an award of $140 million, after finding that the ‘entire market value’ rule was wrongly applied to calculate patent damages.

Circuit Judge Timothy Dyk delivered the court’s decision on Thursday, September 20.

Power Integrations, a Silicon Valley-based supplier of electronic components, sued Taiwanese energy company Fairchild Semiconductor for patent infringement in 2009.

The complaint, filed at the US District Court for the Northern District of California, alleged that Fairchild’s controller chips infringed two patents (6,212,079 and 6,538,908) covering power switch regulators and power supply controllers.

A jury found that Fairchild had infringed Power Integration’s patents, and Fairchild was ordered to pay $140 million in the form of “a reasonable royalty”.

This figure was based on the entire market value rule, which allows for the overall end-product (including non-infringing components) to be used when determining damages in an infringement case.

The rule applies where the infringing feature is the basis of consumer demand for the product.

As explained by the Federal Circuit, over application of the rule can skew the award of damages to a higher-than-justified amount in certain cases.

The Federal Circuit first issued an opinion in the matter on July 3, but following Power Integration’s petition for rehearing, the matter was re-visited last week.

Agreeing with the Federal Circuit’s earlier ruling, Dyk affirmed the California court’s judgment but not the award of damages.

He said that the entire market value rule should not have been used to calculate damages because Fairchild’s end-product had other “valuable features”, aside from those relating to Power Integration’s patented components.

As such, the damages should be apportioned to reflect the value of the infringing feature of the product, the Federal Court explained.

Dyk said that a failure to assess damages on this basis may allow the patent owner to be “improperly compensated for non-infringing components of that product”.

Power Integrations had argued that the frequency reduction feature of its ‘079 patent drove the consumer demand for Fairchild’s controller chips, because the infringing component is essential to the end-product.

However, Dyk explained that Power Integrations should have shown that the end-product’s other valuable features did not cause consumers to purchase the chips. Proving that the infringing component is essential to the end-product is insufficient to show this, he added.

There is “no proof” that the end-product’s other features failed to impact the consumer demand, Dyk concluded, meaning that Power Integrations’ evidence was insufficient to invoke the entire market value rule.

Dyk referred the matter back to the district court for a new trial on damages.

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