Power Integrations, Inc. v. Fairchild Semiconductor Int’l, Inc., Nos. 2011-1218, 2011-1238, 2013 WL 1200270 (Fed. Cir. March 26, 2013)
Power Integrations provides helpful insights on several key damages issues:
- There are no extraterritorial damages, even under a “but for” causation test.
- Yet again, the court confirms that an expert must base his testimony on solid evidence.
- Remittitur based on a flawed induced infringement finding won’t fly.
- Don’t plan on getting damages in an amount greater than accused sales for direct infringement.
- Price erosion is a viable damages theory.
In Power Integrations, a jury decided that Defendant willfully infringed Plaintiff’s patents, awarding nearly $34 million in damages based on lost sales, price erosion, future lost profits due to price erosion, and a lump sum royalty. Id. at *16-*17. Finding that the jury’s award was contrary to law, the district court granted Defendant’s motion for remittitur, reducing the award by 82 percent to reflect domestic, as opposed to international, sales using an inducement theory. Id. at *17. The district court then doubled the remitted damages award based on the willfulness finding for a total award of more than $12 million. Id. at *17. Both parties appealed. The Federal Circuit dealt with damages issues in five distinct areas.
Jury Award – The Federal Circuit analyzed two aspects of the jury award: (1) Inclusion of Defendant’s worldwide sales in the award, and (2) testimony of Plaintiff’s damages expert, Dr. Troxel.
Plaintiff argued that, having established an act of domestic infringement, it was entitled to damages for lost foreign sales using a “but for” theory of causation. Id. at *18. Citing numerous cases, the Federal Circuit rejected this argument, deciding that the district court did not err in finding the jury’s award contrary to law because “[i]t is axiomatic that U.S. patent law does not operate extraterritorially to prohibit infringement abroad.” Id. at *18-*19.
On appeal, Defendant argued that the testimony of Plaintiff’s damages expert was speculative and the data he relied on was inadmissible. Id. at *19. The Federal Circuit concluded that the expert’s testimony was unreliable in several respects. First, the expert improperly relied on unreliable data of Defendant’s worldwide sales that he found on the Internet. Id. at *20. Second, the expert layered two speculative assumptions on top of the Internet-derived sales data. Id. at *21. While finding that the district court erred in admitting the testimony, the Federal Circuit did not find that a new trial was warranted in light of its other holdings. Id.at *21.
Remittitur – Finding that the jury verdict improperly included foreign sales, but that the evidence showed Defendant induced infringement, the district court remitted the verdict by 82 percent based on the testimony of Plaintiff’s damages expert. Id. at *21-*22. The Federal Circuit vacated the damages award based on its finding that the district court erred (1) in relying on the worldwide sales evidence presented by Plaintiff’s damages expert (Id. at *22-*23); (2) when it relied on the flawed assumption advanced by Plaintiff’s damages expert that 18 percent of Defendant’s worldwide sales were domestic when in fact the evidence did not support that assumption (Id. at *23); and (3) because evidence of direct infringement to support the district court’s induced infringement finding was insufficient (Id.).
Direct Infringement – At trial, the parties stipulated that the total value of accused devices sold or imported into the United States was $765,724. Id. at *24. The Federal Circuit deemed this a stipulation of direct infringement upon a finding of infringement. Id. The verdict form did not specify whether the finding was based on direct or induced infringement. Id. Thus, the Federal Circuit reasoned, the record supported a finding of direct infringement, at least to products included in the stipulation. Id. The case was remanded for a new trial to determine the proper amount of damages based on direct infringement supported by substantial evidence in the existing record (i.e., the stipulated accused sales). Id. at *25.
Price Erosion – In light of Plaintiff’s failure to mark its products, the district court granted partial summary judgment in Defendant’s favor. The court’s order precluded Plaintiff from submitting any economic or market data before the date it gave notice of infringement to Defendant. Thus, Plaintiff was unable to support its price erosion theory based on pre-notice evidence. Id. at *25.
Affirming that price erosion is a legitimate form of compensatory damages, the Federal Circuit reversed the district court and held that, while Plaintiff could not recover damages for pre-notice infringement, the proper starting point for a price erosion analysis is the first date of infringement. Id. at *27.
Accounting – The Federal Circuit found that the district court erred by not allowing Plaintiff an accounting for Defendant’s post-verdict infringing sales when it concluded that Plaintiff had failed to preserve its rights to an accounting. Id. at *27-*28. The Federal Circuit decided that boiler-plate allegations in the complaint were adequate to preserve the right to an accounting. Id.