May 14, 2013
LES Insights
Authored by D. Brian Kacedon, John C. Paul, and Jose M. Recio
A patentee provides notice to the public that its products are covered by a patent by marking the products in accordance with the marking provisions in 35 U.S.C. § 287. A patentee's failure to mark products covered by an asserted patent limits possible damages to those incurred only after notifying the defendant of the alleged infringement.
In Power Integrations, Inc. v. Fairchild Semiconductor International, Inc.,1 the Federal Circuit held that, although the marking statute limits damages when a patentee fails to mark its patented products, a court may rely on evidence of prenotice infringing activity when calculating damages. Because courts must consider the whole of the alleged infringement when calculating damages, the Federal Circuit explained, infringing activities occurring both before and after notice of infringement are relevant to the damages inquiry.
Power Integrations and Fairchild manufacture and supply electronics components used in cellular telephones. In 2004, Power Integrations sued Fairchild for infringement of four U.S. patents related to battery chargers typically sold with cellular telephones. After two trials (bifurcating infringement and damages from invalidity) the juries found the patents willfully infringed and not invalid. Although leaving the jury's infringement and invalidity findings in place and issuing a permanent injunction, the district court granted a new trial on willfulness to consider a change in the law regarding that issue and further granted Fairchild's motion for remittitur of the jury's damages award. The court's remittitur reduced damages 82% from what the jury had awarded, to $6.1M. Following a bench trial on willfulness, the court found that Fairchild's infringement was willful under the new standard of law. It then exercised its discretion to enhance the damages for willfulness, doubling the remitted amount to $12.2M.
Both parties appealed the district court's decisions. Fairchild appealed the rulings on claim construction, obviousness, willful infringement, and the ultimate damages award. Power Integrations cross-appealed, arguing that the district court erred in calculating damages. Particularly, Power Integrations argued that the district court failed to allow evidence of prenotice price erosion and erred in denying a motion for postverdict accounting.
On appeal, the Federal Circuit affirmed-in-part, reversed-in-part, and vacated-in-part the district court's decisions, and remanded the case for further proceedings. First, the Federal Circuit affirmed the construction of one claim term but reversed on the construction of the term "soft start circuit." Specifically, the Federal Circuit held that the district court improperly construed this term as a means-plus-function limitation and therefore remanded for the district court to construe the term as a conventional limitation. On the issue of obviousness, the Federal Circuit affirmed the denial of Fairchild's motion for judgment as a matter of law finding that Power Integrations' evidence of objective considerations of nonobviousness adequately supported the jury's verdict.
In addition to issues of claim construction and validity, the Federal Circuit addressed the district court's damages determinations. On the district court's remittitur of the jury's damages award, the Federal Circuit affirmed. The district court had determined that the jury award was improperly rooted in Fairchild's extraterritorial use of the patented inventions. On appeal, the Federal Circuit agreed, holding that "Power Integrations is incorrect that, having established one or more acts of direct infringement in the United States, it may recover damages for Fairchild's worldwide sales of the patented invention because those foreign sales were the direct, foreseeable result of Fairchild's direct infringement." Extraterritorial infringement, the Federal Circuit explained, "cuts off the chain of causation" that is started by domestic infringement.
The court also addressed a challenge to the expert testimony offered by Power Integrations. Specifically, the expert had used data regarding worldwide sales of phones to estimate sales of the accused power circuits, which were incorporated into phone chargers. The court held that the testimony was unreliable in several respects. First, the expert had used documents without a clearly identified source, allegedly found "off the internet." Unless the expert could identify a reliable source for his data, the court held, it could not be used to support the analysis. Second, the court held that the expert used an unreliable methodology by directly correlating the number of infringing mobile-phone chargers to sales of phones. According to the court, there must be some evidentiary basis on which to conclude that all phone sales included a charger. Further, the court held, without identifying the model numbers of the chargers sold, there was no basis on which to conclude that all the chargers sold incorporated an infringing power circuit, particularly in light of testimony that the mobile-phone provider obtained charger components from multiple sources.
Because damages for infringing a U.S. patent cannot include all worldwide sales, Power Integrations was limited to damages from products it directly sold or imported to the United States (products worth about $766k) in addition to products for which it induced importation. The district court's remittitur holding relied on testimony that 18% of the devices sold worldwide were ultimately imported into the United States.
Accordingly, it had eliminated the 82% that could not support damages. The Federal Circuit looked at the evidence supporting the assertion that 18% of worldwide sales were ultimately imported. It concluded that the same problems plagued this evidence as with the expert's numbers for worldwide sales. Specifically, the data related to mobile phones, not the accused power circuits or even chargers that may have incorporated the circuits. Without sufficient evidence to support even the remitted damages award, the Federal Circuit vacated the award of damages for induced infringement.
The court then considered damages for direct infringement. Because it affirmed the infringement finding and Fairchild had stipulated to importing products worth $765,724, the court held that the district court must hold a new trial to determine the proper amount of damages for that portion of infringing sales.
Another issue in the case related to economic or market data predating the suit, which the district court had excluded because of its conclusion that Fairchild lacked notice of the patent before that time. When Power Integrations sought to support a damages model based on price erosion, the district court's exclusion of presuit evidence prohibited it from establishing that Fairchild's infringement reduced the market price of the patented circuits—a theory of price erosion.
But notwithstanding that Power Integrations may not be entitled to presuit damages because it did not mark its products, the Federal Circuit held that it must be permitted to rely on presuit evidence that Fairchild's activities depressed the price of the patented circuits. In other words, the marking statute limited damages for infringement but has no effect on what is considered an act of infringement. Accordingly, all acts of infringement are relevant to the calculation of the appropriate damages rate. The court therefore instructed the district court to allow prenotice evidence in the new trial on damages.
The Federal Circuit also reversed the district court's denial of Power Integrations' post-trial motion for an accounting of postverdict infringing sales. Because Power Integrations' complaint did not contain any "temporal limit" on the damages requested, the Federal Circuit determined that Power Integrations' post-trial motion for an accounting was timely, even though Power Integrations did not raise the issue in the complaint or pretrial submissions. The court did, however, agree with Fairchild that Power Integrations should not get a "second bite at the apple" and therefore limited the scope of accounting to postverdict sales that directly infringed. Finally, the court's remand order vacated the district court's finding of willfulness and instructed the court to reconsider willfulness in light of the various holdings on appeal.
Several important lessons or reminders arise from the Power Integrations case. A patent owner must carefully establish that the sales it accuses of infringement are adequately connected to the patented device/method and must similarly prove that foreign sales ultimately resulted in importation. Additionally, while the marking statute limits damages to postnotice infringement, litigants should remember that prenotice activities may still affect the ultimate figure of damages awarded for infringement.
Endnotes
1 The Federal Circuit's Power Integrations decision can be found at http://www.finnegan.com/files/Publication/54d97847-1ee0-4fc6-bdca-e2688904c04c/Presentation/PublicationAttachment/88648df8-1e5b-4455-a5a7-e5d514c088cd/11-1218%2003-26-13.pdf.
Copyright © Finnegan, Henderson, Farabow, Garrett & Dunner, LLP. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm's clients.
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