Power Integrations, Inc. v. Fairchild Semiconductor International, Inc., et al., Nos. 2011- 1218, - 1238 (Fed. Cir. Mar. 2013)

http://www.ded.uscourts.gov/sites/default/files/opinions/lps/2013/march/08-309.pdf

The Federal Circuit confirmed that U.S. courts do not have authority to award damages for patent infringement that takes place abroad, notwithstanding the Supreme Court’s command that patentees be fully compensated for infringement, even when the foreign sales are the direct and foreseeable result of domestic infringement.

Power Integrations sued Fairchild for infringing four U.S. patents relating to power supplies for electronic devices, technology used in mobile phone chargers. The jury found several claims willfully infringed and awarded damages of almost $34 million, comprised of lost profits (both from lost sales and past and future price erosion) and royalty damages. Fairchild moved for remittitur, arguing the damages award was based on worldwide sales. The trial judge granted Fairchild’s motion and reduced the damages award by 82% to $6.1 million. Power Integrations appealed the remittitur and Fairchild challenged the reduced damages award.

Power Integrations argued that it should be compensated for the foreign sales because it was foreseeable that Fairchild’s infringement in the U.S. would cause a loss of sales abroad, citing the Supreme Court’s statement about the damages statute, 35 U.S.C. §284, that “Congress sought to ensure that the patent owner would in fact receive full compensation for ‘any damages’ he suffered as a result of the infringement.” General Motors Corp. v. Devex Corp., 461 U.S. 648, 654-55 (1983).

The Federal Circuit found this creative argument to be “unpersuasive,” and cited the axiom that U.S. patent laws do not have extraterritorial effect. “[A] defendant’s foreign exploitation of a patented invention … is not infringement at all.” The fact that the foreign sales might be the direct, foreseeable result of domestic infringement is immaterial. “[T]he entirely extraterritorial production, use or sale” of a patented invention “is an independent, intervening act that, under almost all circumstances, cuts off the chain of causation initiated by an act of domestic infringement.” Because the jury’s award was based mostly on foreign sales, the court affirmed the trial court’s ruling that the award was contrary to law.

The court also found that the testimony of the plaintiff’s damages expert was unreliable and that the trial court had abused its discretion in admitting it. First, the expert had relied on a document about worldwide Samsung phone sales of which he did not know the source. Second, the expert assumed, without any factual basis, that all Samsung phones came with a charger containing infringing circuits. The expert’s data and methodology were deemed unreliable and inadmissible under Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579, 589–90 (1993); and Kumho Tire Co., Ltd. v. Carmichael, 526 U.S. 137, 148 (1999).

The court also vacated the trial court’s reduced damages figure of $6.1 million. The remitted damages were based on the trial court’s acceptance of Power Integration’s evidence that 18% of theproducts that resulted from infringement abroad had been imported back into the U.S. by ‘unnamed third parties,” making Fairchild liable, the trial court found, as a contributory infringer. The source of this evidence was again Power Integration’s damages expert; he had relied on the hearsay document about Samsung’s worldwide sales that the court had already ruled too speculative and a second document about Samsung’s U.S. sales the court also found to be speculative. “The evidence demonstrates no direct connection between Samsung’s worldwide [or U.S.] sales of mobile phones and sales of Fairchild’s infringing power circuits.” In fact, the court noted, there was evidence that some of the phones Samsung sold did not contain Fairchild’s infringing circuit. The opinion of Power Integration’s expert that all Samsung phones contained the infringing circuit was pure speculation. The court noted that the parties had entered into a pre-trial stipulation that Fairchild had made or sold in the U.S., or imported into the U.S., accused devices with a value of only $765,724, and the plaintiff’s counsel had read that stipulation to the jury.

Based on these evidentiary flaws, the court found both that the $6.1 million in reduced damages calculated by the trial court (by removing, as noted, 82% of the plaintiff’s damages figure) was not supported by substantial evidence and that, more broadly, there was insufficient evidence to find Fairchild liable for contributory infringement.

The court then addressed a disputed issue about price erosion. Because the plaintiff had not marked its products per Section 287, and Fairchild’s first notice of infringement was the filing of the suit, the trial court had held that (a) Power Integration’s damages were limited to post-filing infringements and (b) evidence of pre-suit price erosion caused by Fairchild’s infringement was inadmissible, even as to post-suit sales by Power Integration. The Federal Circuit agreed with the trial court on the first issue but reversed the trial court’s exclusion of evidence as to the price erosion caused by Fairchild’s pre-notice infringements. Such evidence, the court held, is relevant to establish damages from post-notice infringements.

As its final ruling on damages, the court reversed the trial court’s rejection of Power Integration’s request for an accounting of post-verdict infringement damages, but limited it to post-verdict damages from direct infringement.

The court also modified the trial court’s claims construction somewhat, and affirmed the rejection by the jury and trial judge of Fairchild’s obviousness defense. Regarding the §103 issue, Fairchild had cited a patent, the ‘Martin patent,’ issued more than 11 years before the filing date of the patents at issue. The only “salient” difference between the Martin patent and the claims at issue was that the Martin patent included EPROM memory. The court agreed with Fairchild that the EPROM’s function was distinct from the patented functionality. However, the court found significant secondary considerations of non-obviousness, which the court deemed “essential to the obviousness analysis.” This included evidence that the Martin EPROM added expense and complexity yet no one in the 11-year interval had suggested removing the EPROM; evidence of ‘overwhelming’ commercial success of the patented products, attributed to the patented features; advertising by both parties touting the patented features; awards to Power Integration; and evidence of Fairchild’s copying (reverse-engineering). In sum, the court found “substantial evidence of objective considerations of non-obviousness to support the jury’s conclusion that claim 1 … would not have been obvious ….”

The court vacated the damages award based on contributory infringement and remanded the case for reconsideration of claims construction and a new trial on pre- and post-verdict damages for direct infringement. The court vacated, without discussion, the finding that the infringement had been willful, directing the trial court to reconsider that issue in light of the other rulings.