Power Integrations, Inc. v. Fairchild Semiconductor International, Fed. Cir. (July 3, 2018)
Patent damages law can be fairly complex—so much so that Daubert motions against damages experts are filed in nearly every case. These motions often accuse damages experts of overreaching by failing to properly apportion damages or misapplying the entire market value rule ("EMVR"). On Tuesday, the Federal Circuit's opinion in Power Integrations, Inc. v. Fairchild Semiconductor International attempted to clarify these aspects of the patent damages analysis, vacating the jury's $139.8 million damages award in the form of a reasonable royalty.
A patentee seeking damages for the sale of a multicomponent (or multifunction) product must typically take several steps to ensure that any alleged damages have been properly apportioned to exclude the value provided by the product's noninfringing aspects. First, the royalty base has to be determined on the smallest saleable patent practicing unit. Second, that reduced royalty base needs to be apportioned to reflect only the value attributable to the patented technology. A royalty based on the value of the entire multicomponent product will likely yield much higher damages, but such a royalty can be recovered only if the plaintiff satisfies the very strict requirements of the EMVR.
The Power Integrations case offers additional guidance on these strict EMVR requirements. The EMVR is satisfied, the decision explains, only when a product has no other valuable features aside from those covered by the patent. Put another way, the patented features must be the sole driver of consumer demand for the product. It is not enough merely to show that the patented feature is essential to the product or its commercial viability, nor can the patentee simply show that customers would not have purchased the product if it lacked the patented feature.
The Power Integrations decision also emphasizes that the burden rests on the patentee to show that the patented feature is the sole drive of customer demand in analyzing the EMVR. If the accused infringer comes forward with evidence of other non-patented valuable features as Fairchild did here, then the plaintiff must prove that those non-patented features are irrelevant to consumer choice and that the patented features alone motivate purchasing decisions.
Litigants on both sides of the "v" should keep these requirements in mind, especially during discovery and when drafting expert reports. Plaintiffs seeking big damages based on the EMVR should ensure that they are obtaining the needed evidence relating to purchasing decisions, including by collecting documents and taking depositions of third-party customers. Defendants, on the other hand, should seek evidence showing that customers valued the non-patented features of the products. By following these strategy tips, both sides can be better prepared when the time for the inevitable Daubert motion arrives.
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