Federal Circuit Limits Patent Infringement Damages

The Patent Holders' Rights 

A person or entity that owns a patent has the right to prohibit others from making, using, selling, offering for sale or importing an infringing product. Usually, the process begins with the patent holder informing the alleged infringer of their rights and pointing out the features of the product being sold that they believe violate those rights. 
 

Patent Infringement Litigation


The two parties may argue back and forth about whether or not actual patent infringement is occurring, and if they cannot agree, then the patent owner may file a lawsuit. The entire process is incredibly complex and time consuming with evidence being collected and depositions being held. Most of these cases do not go to trial. The ones that do usually have both sides digging in their heels. If the patent holder prevails, then it's a foregone conclusion that the defendant will appeal the decision. 

When it's time for the judge or jury to render a decision, they have two basic choices. They can either award damages based on the entire market value of the products sold or damages may be awarded based on a reasonable royalty for the infringing features alone. 
 

Recent Litigation Case


A recent decision by the Federal Circuit Court of Appeals appears to place limits on the damages that can be awarded to patent holders. Arguing that plaintiffs should only be able to recover damages based on the monetary value of the infringing features in the product, the court decided that the plaintiff was only entitled to a smaller settlement amount. 

Power Integrations, Inc. sued Fairchild Semiconductor International over features in their power supply controller chips. The plaintiff held two patents for switching regulators, and they argued that Fairchild was infringing both of those patents with their products. 

A 2014 jury trial found in favor of Power Integrations to the tune of $105 million. This amount represented a reasonable royalty based on the value of the infringing features in the products. Fairchild asked for a new trial but was denied. The Federal Circuit subsequently heard another case in which a product contained both infringing and non-infringing features, in which damages were awarded for the total market value of the product. This led them to order another trial, this time focused solely on damages. 

Power Integrations was awarded $140 million after this trial, with the amount this time being based on the entire market value. This amount included compensation for the overall product, including its non-infringing features. 

Fairchild asked for another trial in the wake of this decision but was again denied. Nevertheless, they filed an appeal, which has now been heard at the Federal Circuit. In vacating the damages in the second trial, the court held that "a patentee is only entitled to a reasonable royalty attributable to the infringing features." This rule essentially means that the plaintiff must demonstrate their damages as a separate, smaller amount compared to the total profit realized by the defendant when the product in question involves non-infringing features. 
 

The Courts Decision


Essentially, the court decided that some of the features in Fairchild's products were not patented, and because they were significant to the product, they were also instrumental in the buying decisions of consumers. Because Power Integrations could not demonstrate that the patented features in the product were solely what was driving customer demand, they were not entitled to the total market value. 

Accordingly, the court vacated the damages decision from the second trial. This is potentially good news for anyone who is accused of patent infringement as it places a strict limit on how much the plaintiff is allowed to recover. Of course, the better option is to strive to avoid infringing on a patent holder's rights in the first place by working with an intellectual property attorney.
 
Let us know if we can help with any patent litigation issues you may be facing.
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