Supreme Court denies petition to decide patent damages issue about entire market value rule
Recently, the Supreme Court denied a petition from Power Integrations, Inc. to decide a question about patent damages, the “entire market value” rule, and what parties must prove to recover or avoid large damages awards in patent infringement lawsuits. As an exception to the general rule, the entire market value rule allows a patent holder to recover damages on patented and unpatented features of an infringing product. For the entire market value rule to apply, the patent holder must show that the patented feature drove customer demand of the infringing product or substantially created the product’s value. Suppose, for example, you owned a patent to a travel mug lid and sold mugs using the lid. Let’s say a competitor starts selling mugs with lids that infringe your patent. Without the entire market value rule, your damages would be limited to just the lid (the patented feature). But you might recover damages on the whole travel mug (the lid, mug, handle, etc.), if you could show that the patented lid drove demand for the mug. It is easy to see how the entire market value might be a boon to patent holders and a bane to alleged infringers. Here’s Power Integrations’ question to the Court: Does the patent holder not only have to show that the patented feature (the lid) drove demand but also that unpatented features (e.g., the mug or handle) did not drive demand for the entire market value rule to apply?
This question arose from a patent infringement lawsuit in the United States District Court for the Northern District of California between Power Integrations and Fairchild Semiconductor International, Inc. and others (collectively, Fairchild), both of which manufacture power supply controllers. Power Integrations sued Fairchild for infringing two patents, U.S. Patent Nos. 6,212,079 and 6,538,908. The 079 patent covered switching regulators with a frequency reduction feature for use in a power supply controller; the 908 patent covered a power supply controller. The jury found that Fairchild literally infringed the 079 patent and infringed the 908 patent under the doctrine of equivalents. After a second damages trial, a jury awarded Power Integrations $139.8 million in damages based on the entire market value rule. Fairchild appealed the infringement findings and the damages award to the Court of Appeals for the Federal Circuit.
Despite affirming infringement of the two patents, the Federal Circuit vacated the jury’s $139.8 million damages award to Power Integrations. The Federal Circuit explained that the power supply controllers had other valuable features, like jittering, and noted that Power Integrations had even sued Fairchild for patent infringement over the jittering feature in another lawsuit. So, it concluded that there was no proof that these other features, like jittering, did not affect consumer demand and that Power Integrations did not meet its burden for the entire market value rule. In the wake of losing such a substantial jury verdict, Power Integrations petitioned the Supreme Court for review.
The Supreme Court’s denied Power Integrations’ petition on February 25, 2019, so it will not decide Power Integrations’ question. In view of this denial, one way to understand the Federal Circuit’s decision is that Power Integrations simply did not prove that the patented feature drove the demand in view of other evidence in the record—not that the patentee must prove a negative (i.e., that unpatented features did not drive demand). But it is unclear how litigants will understand the Federal Circuit’s decision going forward.
Power Integrations Inc. v. Fairchild Semiconductor Int’l, Inc., No. 18-779, 2019 WL 887884, at *1 (U.S. Feb. 25, 2019).
LaserDynamics, Inc. v. Quanta Computer, Inc., 694 F.3d 51, 67 (Fed. Cir. 2012) (citing Rite-Hite Corp. v. Kelley Co., 56 F.3d 1538, 1549 (Fed. Cir. 1995) (en banc)).
Power Integrations, Inc. v. Fairchild Semiconductor Intern. Inc., 2018 WL 6706073 (U.S.), ii.
See Power Integrations, Inc. v. Fairchild Semiconductor Int’l, Inc., No. C 09-5235-MMC, 2017 WL 950992 (N.D. Cal. Mar. 10, 2017).
Power Integrations, Inc. v. Fairchild Semiconductor Int’l, Inc., 904 F.3d 965, 969 (Fed. Cir. 2018).