Federal Circuit: Price Erosion Analysis Starting Point for Post-notice Infringement Damages is Date of First Infringement

Practical Law Legal Update 5-525-5022 (Approx. 5 pages)

Federal Circuit: Price Erosion Analysis Starting Point for Post-notice Infringement Damages is Date of First Infringement

by PLC Intellectual Property & Technology

Key Litigated Issues

The appeal in Power Integrations, Inc. v. Fairchild Semiconductor International, Inc. involved a number of issues, including the district court's rulings on validity, claim construction, damages and willful infringement.

This Legal Update focuses on the following two key litigated issues:

Power Integrations's appeal of the district court's exclusion of evidence of price erosion for purposes of calculating damages arising out of post-notice infringement.
Fairchild's appeal of the district court's construction of the claim term "soft start circuit" as a means-plus-function claim.

Background

In 2004, Power Integrations sued Fairchild in the US District Court for the District of Delaware for infringement of four patents related to technology used in electric chargers for mobile phones:

In 2006, the district court bifurcated infringement and damages from the patent validity issues. The separate juries both rendered verdicts in favor of Power Integrations. In the trial on infringement and damages, the jury found that Fairchild had willfully infringed certain of Power Integrations' claims in the four patents. The jury awarded Power Integrations total damages of nearly $34 million, including lost profits due to price erosion. In the trial on validity, the jury found all asserted claims valid. The district court then denied Fairchild's motion for judgment as a matter of law (JMOL) that the invention of Power Integrations' '876 patent would have been obvious to one of ordinary skill in the art.

Fairchild moved for remittitur, JMOL, or in the alternative, a new trial on damages. The district court:

Granted Fairchild's motion for remittitur and reduced the jury's combined damages award by 82%, to a total award of just over $6 million.
Issued a permanent injunction covering all claims of the asserted patents.
Granted Fairchild's motion for a new trial on willful infringement based on the Federal Circuit's decision in In re Seagate Tech., LLC.

In January 2011, the district court reaffirmed a June 2009 bench trial verdict that Fairchild willfully infringed Power Integrations' patents. The district court also awarded Power Integrations enhanced damages for willful infringement, doubling the remitted damages award to a total just over $12 million.

Fairchild appealed the district court's:

Claim construction of certain terms, including its determination that "soft start circuit" is a means-plus-function claim.
Denial of Fairchild's JMOL motion that one of Power Integrations's inventions would have been obvious.
Formulation of the remitted damages award.
Willful infringement determination.

Power Integrations cross-appealed the district court's:

Grant of remittitur reducing the original damages award by 82%.
Exclusion of evidence of pre-notice price erosion for the purpose of calculating damages from Fairchild's post-notice infringement.
Denial of a post-verdict accounting.

Outcome

In its March 26, 2013 opinion, the Federal Circuit:

Affirmed the district court's finding of non-obviousness.
Affirmed in part and reversed in part the district court's ruling on claim construction, finding that the district court erred in construing the term "soft start circuit" as a means-plus-function claim (see Claim Construction: "Soft Start Circuit" Not a Means-Plus-Function Limitation).
Vacated the district court's order of remittitur and the attendant damages award.
Found the district court erred in excluding evidence related to pre-notice price erosion and in its refusal to grant Power Integrations a post-verdict accounting (see Damages: Price Erosion Evidence).
Vacated the district court's finding of willful infringement.

Damages: Price Erosion Evidence

Before the infringement and damages trial, Fairchild moved for partial summary judgment on the issue of pre-suit damages. Fairchild argued that Power Integrations had failed to mark its patented products in accordance with Section 287 of the Patent Act and therefore was precluded from relying on any economic or market data before the date Fairchild was notified of the infringement. The district court granted the motion and prohibited Power Integrations from introducing evidence that Fairchild's pre-notice infringing sales had depressed the market price of the patented products and therefore reduced Power Integrations's profits on sales after the notice date.

The Federal Circuit reversed, concluding that to the extent an infringer's pre-notice infringement erodes a patented product's market price, price erosion is relevant to determine for each post-notice act of infringement what the patentee would have made but for the infringement. The court held that a price erosion analysis relating to damages arising from post-notice infringement must measure price changes against infringement-free market conditions. Therefore, the proper starting point of a price erosion analysis is the date of first infringement.

Claim Construction: "Soft Start Circuit" Not a Means-Plus-Function Limitation

The Federal Circuit held that the district court erred in construing the term "soft start circuit" in two of the asserted patents as a means-plus-function limitation under 35 U.S.C. § 112(f). As an initial matter, the Federal Circuit noted that:

If a claim term does not use the word "means," the court presumes that the term is not a means-plus-function limitation. However, if the claim recites a function without reciting sufficient structure for performing the function, the presumption fails and the term is construed as a means-plus-function limitation.
The assessment of whether a claim limitation recites sufficient structure is from an ordinarily skilled artisan's vantage point.

The Federal Circuit referenced its previous decisions finding that the term "circuit" connotes structure. Relying on its decision in MIT v. Abacus Software (Abacus), in determining whether "circuit" invokes the means-plus-function presumption, the issue is whether the circuit limitation as properly construed recites sufficiently definite structure.

The opinion acknowledged the district court's concern that an ordinarily skilled artisan would not know the precise structures for a soft start circuit because the function of the circuit can be achieved in a variety of ways. However, the Federal Circuit emphasized that the requirement is only that the claim term designate a sufficiently definite structure, even if that covers a broad class of structures. As in Abacus, the Federal Circuit found sufficient structure in the context of the claimed invention because the limitation described:

An input to the circuit (the oscillation and frequency variation signals).
A straightforward function (comparing of the magnitudes of these signals).
An output (the signal provided to the drive circuit based on the comparison).

Practical Implications

This case is notable because of the Federal Circuit's holding that the proper starting point for a price erosion analysis relating to damages arising from post-notice infringement is the date of first infringement.

In addition, practitioners should take note of the Federal Circuit's decision finding that the "soft start circuit" claim limitation recited sufficient structure to avoid means-plus-function claiming.

Federal Circuit: Price Erosion Analysis Starting Point for Post-notice Infringement Damages is Date of First Infringement | Practical Law