United States: Damages For Overseas Sales Not Established By A Showing Of Direct Infringement In The United States And Foreseeability Of The Overseas Sales

In Power Integrations, Inc. v. Fairchild Semiconductor International, Inc., Nos. 11-1218, -1238 (Fed. Cir. Mar. 26, 2013), the Federal Circuit affirmed the district court’s finding of nonobviousness, affirmed-in-part and reversed-in-part the district court’s ruling on claim construction, vacated the district court’s order of remittitur and its attendant damages award, found error in the district court’s exclusion of evidence related to prenotice price erosion and in its refusal to grant Power Integrations, Inc. (“Power Integrations”) a postverdict accounting, vacated the district court’s finding of willful infringement, and remanded to the district court for further proceedings.

Power Integrations filed suit against Fairchild Semiconductor International, Inc. (“Fairchild”) for infringement of U.S. Patent Nos. 6,249,876 (“the ’876 patent”); 6,107,851 (“the ’851 patent”); 6,229,366 (“the ’366 patent”); and 4,811,075 (“the ’075 patent”).  The patents relate to technology used in electric chargers for mobile phones.  Following two jury trials, a bench trial, and post-trial proceedings, including a motion for remittitur, the district court found the patents valid and infringed, and awarded compensatory and enhanced damages to Power Integrations.  Fairchild appealed, asserting that the district court erred in its claim construction, in denying Fairchild’s motion for JMOL on obviousness, in formulating its remitted damages award, and in finding willful infringement.  On cross-appeal, Power Integrations argued that the district court erred in granting Fairchild’s motion for remittitur, in excluding evidence related to price erosion, and in denying Power Integrations’ motion for postverdict accounting.

First, the Federal Circuit affirmed the district court’s construction of “frequency variation signal” in the ’851 and ’366 patents as “an internal signal that cyclically varies in magnitude during a fixed period of time and is used to modulate the frequency of the oscillation signal within a predetermined frequency range.”  Slip op. at 15.  The Court rejected Fairchild’s argument that the term had a plain and ordinary meaning, noting that an expert for Power Integrations testified to the contrary.  Instead, the Court relied on the intrinsic record and found that the district court’s construction was proper.  The Federal Circuit reversed the district court’s construction of “soft start circuit” in the ’851 and ’366 patents as
means-plus-function limitations.  The Court reasoned that the term had sufficient structure in the claims of both patents to avoid means-plus-function claiming.  The Court stated that on remand, the district court should construe the claims, assess any effects the new constructions may have on validity and infringement, and determine whether to order a new trial.

“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 sale of the patented invention because those foreign sales were the direct, foreseeable result of Fairchild’s domestic infringement.”  Slip op. at 38.

Next, the Federal Circuit affirmed the district court’s denial of Fairchild’s motion for JMOL on obviousness.  The Court explained that “[t]he record here is replete with testimony and other evidence demonstrating that Power Integrations’ patented technology was far less obvious than [the prior art] on its face suggests.”  Id. at 31.  The Court concluded that the jury’s conclusion of nonobviousness was supported by substantial evidence of objective considerations of nonobviousness, including that no one in the industry “was able to come up with the patented invention,” commercial success, praise, and copying.  Id. at 32.

Regarding damages, the Federal Circuit first held that the district court correctly concluded that the jury’s total damages award of over 33 million dollars was contrary to law.  The Court reasoned that the jury award was based on worldwide sales, and that Power Integrations was not “entitled to compensatory damages for injury caused by infringing activity that occurred outside the territory of the United States.”  Id. at 38.  The Court rejected Power Integrations’ foreseeability theory of worldwide damages, stating 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 domestic infringement.”  Id.  “To the contrary, the entirely extraterritorial production, use, or sale of an invention patented in the United States is an independent, intervening act that, under almost all circumstances, cuts off the chain of causation initiated by an act of domestic infringement.”  Id. (citing Morrison v. Nat’l Austl. Bank Ltd., 130 S. Ct. 2869, 2884 (2010)).  The Court also reasoned that the testimony by Power Integrations’ damages expert was unreliable, because it was derived from unreliable data and built on speculation.

The Federal Circuit next held that the district court was incorrect in reducing the worldwide damages award by 82%.  The district court had reasoned that Fairchild was liable for induced infringement based on the importation of devices by third parties, including Samsung.  The district court accepted testimony from Power Integrations’ damages expert that 18% of the devices sold worldwide were imported into the United States.  The Court disagreed with the district court, concluding that “the evidence on the record does not support the district court’s decision to base its remitted damages award on a percentage of Samsung’s worldwide sales of mobile phones.”  Id. at 45.  “[The expert] did not present evidence linking Samsung’s mobile phone sales data to Fairchild’s infringing power circuits, other than to say that Fairchild sold its infringing components to Samsung.”  Id. at 47.  The Court thus vacated the district court’s damages award, stating that there was no basis upon which a reasonable jury could find Fairchild liable for induced infringement.

Turning to direct infringement, the Court held that the record supported a finding of Fairchild’s liability for direct infringement, at least with respect to the products Fairchild stipulated it made or sold within the United States or imported within the United States.  The Court thus affirmed the jury’s implicit finding that Fairchild was liable to Power Integrations for direct infringement, and instructed the district court to hold a new trial to determine the proper amount of damages.

The Federal Circuit reversed the district court’s grant of Fairchild’s motion for partial SJ, which specifically granted Fairchild’s request that all damages be calculated based on conditions occurring on or after the notice date and thus prohibited Power Integrations from introducing evidence of prenotice price erosion.  The Court instructed that in the new trial on damages for direct infringement, the district court shall admit Power Integrations’ evidence of prenotice price erosion.

Finally, the Federal Circuit reversed the district court’s denial of Power Integrations’ post-trial motion for an accounting of Fairchild’s postverdict infringing sales.  The Court reasoned that Power Integrations’ complaint did not contain any temporal limit on the damages requested and that the Court saw nothing in the record to suggest that Power Integrations waived its right to a postverdict accounting.  The Court noted that “Power Integrations’ purported waiver was unclear enough that the district court found it ‘ambiguous’ whether Fairchild had actually agreed at some point to an accounting.”  Id. at 57.  In reversing the district court’s ruling, however, the Federal Circuit instructed that the scope of the accounting should be limited to any postverdict infringing sales that were substantially related to the direct infringement.  “At this point, Power Integrations has had a full and fair opportunity to develop the record, and its right to a post-verdict accounting is not an unlimited after-hours hunting license.”  Id. at 58.

Judges:  Lourie, O’Malley, Reyna (author)
[Appealed from D. Del., Judge Stark]

This article previously appeared in Last Month at the Federal Circuit, April, 2013

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