Supreme Court asked to review entire market value rule (EMVR) standard

BVWireIssue #197-2
February 13, 2019

intellectual property
royalty rate, reasonable royalty, royalty base, apportionment, patent, entire market value rule (EMVR)

A patent holder recently petitioned the U.S. Supreme Court to review the Federal Circuit’s 2018 decision on what a patentee must do to base damages on the entire market value rule (EMVR). According to Power Integrations Inc. (PI), the patent holder, the Federal Circuit “gutted” the existing damages rule and imposed a new standard that makes it practically impossible to invoke the EMVR.

PI, a maker of power supply controller chips that are used in charging electronic devices, sued Fairchild Semiconductor over developing a line of chips that violated PI’s patented technology and caused PI to lose sales. A jury found the defendant liable and, in a separate damages trial, awarded PI $140 million based on the entire value of the infringing chips. The jury found PI had shown its patented technology was the basis for customer demand for the chips.

Fear of undercompensation: On appeal, the Federal Circuit struck the jury award. The reviewing court found that the patented feature that drove customer demand was not a sufficient basis to invoke the EMVR where the accused product had other valuable features, as it did in this case. To use EMVR, the patent holder also must show that the other features do not drive demand, the Federal Circuit said.

Under the apportionment rule, a cornerstone of patent damages, a patentee may only be compensated for the damages attributable to the infringing features. Where an accused product has multiple features, the patent holder must apportion to the value of the patented feature to the accused product. The EMVR is an exception to the general rule. Until now, it was meant to allow for recovery of the entire profit that results from the use of the invention if the patentee can show the patented feature drives consumer demand for the accused product.

The Federal Circuit’s recent ruling throws long-established damages law into disarray, PI contends in its Supreme Court petition. The new rule creates an “insurmountable” obstacle to use of the EMVR in that it requires the patent holder both to prove consumer demand and a negative, “that other features did not drive consumer demand.” It is always difficult to prove a negative, PI says. It claims that most patent holders will not be able to satisfy the new standard; even the patent holders in the cases where the Supreme Court applied EMVR would not be able to satisfy the new requirement. PI contends the Federal Circuit “sub silentio” overruled a long line of cases with the ultimate effect that patent holders will be undercompensated and “acknowledged, willful infringers” will be able to retain the value “that they could capture only through their infringing use.”

The Supreme Court last year took up a patent damages case, WesternGeco LLC v. ION Geophysical Corp. (damages for foreign lost profits). Therefore, it will be interesting to see whether the court will grant PI’s petition. Stay tuned.

A digest of the Federal Circuit’s ruling in Power Integrations, Inc. v. Fairchild Semiconductor Int’l, Inc., 2018 U.S. App. LEXIS 26842 (July 3, 2018), and the court’s opinion are available at BVLaw.

Extra: Power Integrations’ Supreme Court petition is available at scotusblog.com.

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