This month’s Power Integrations Inc. v. Fairchild Semiconductor International case saw the Federal Circuit overturn a decision to award $140 million in patent damages that would have gone to Power Integrations. The decision to vacate the award hinged on the entire market value rule.

Attorney Bryan Wheelock spoke to Law360 about the matter, the rule, and what this means for damage awards to patent owners.

In a December 2015 jury trial, Fairchild Semiconductor was found to have infringed a patent for a chip that goes in an electronic device charger. In calculating the damages that should be awarded, Power Integrations used the entire market value rule of the smallest saleable unit.  Fairchild argued that this was improper under the Entire Market Value Rule, which requires a further apportionment based upon the value of the invention if the patentee does not show the entire market value is attributable to the invention.

It had previously appeared that the Federal Circuit was moving away from the Entire Market Value Rule in Ericsson v. D-Link (2014) and Exmark v. Briggs & Stratton (2014). Each matter, however, was a special case in which use of the entire market value was appropriate. In Ericsson, the rate was based on real-world commercial licenses based on the entire market value. This gave the Court confidence that the rate on the entire market value was correct. In Exmark, the infringement was willful. This likewise gave the Court confidence that the rate on the entire market value was correct.

The Federal Circuit, however, has said that the entire market value cannot be used unless the patented feature is the sole reason that people were “motivated to buy the accused products.” The overturned ruling shows that the Federal Circuit was not confident that the chip played a significant role in the charger’s sales, a point that may have been overlooked when the damages were being calculated and the royalty rate was set.

The decision may also indicate that the Federal Circuit is paying close attention to large awards of patent infringement damages and using tools, such as the Entire Market Value Rule, to keep them in check.

If a company wants to apply the rule, Wheelock says, the need to show that the patented feature drives demand will be “absolutely critical.”

Even then, a court’s reliance on the jury to determine damage awards can lead to further issues. If the Federal Circuit believes that the jury set the amount for royalties too high, it will invoke the Entire Market Value Rule. “If they see an award and think the invention wasn’t worth all that much, they can adjust it, and the entire market value rule gives them a check on that,” he stressed.

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Read Bryan’s blog post about the Entire Market Value Rule in Power Integrations Inc. v. Fairchild Semiconductor.

Read full article.