Federal Circuit Vacates $1.54 Billion Reasonable Royalty Award for New Trial on "Sales" Location | Practical Law

Federal Circuit Vacates $1.54 Billion Reasonable Royalty Award for New Trial on "Sales" Location | Practical Law

In Carnegie Mellon University v. Marvell Technology Group, Ltd., the US Court of Appeals for the Federal Circuit vacated in relevant part a $1.54 billion reasonable royalty judgment based on Marvell Technology Group, Ltd.'s worldwide sales of infringing computer chips made and used abroad and not imported into the US, remanding the case back for a partial new trial to determine which products were sold in the US under 35 U.S.C. § 271(a).

Federal Circuit Vacates $1.54 Billion Reasonable Royalty Award for New Trial on "Sales" Location

by Practical Law Intellectual Property & Technology
Published on 07 Aug 2015 • USA (National/Federal)
In Carnegie Mellon University v. Marvell Technology Group, Ltd., the US Court of Appeals for the Federal Circuit vacated in relevant part a $1.54 billion reasonable royalty judgment based on Marvell Technology Group, Ltd.'s worldwide sales of infringing computer chips made and used abroad and not imported into the US, remanding the case back for a partial new trial to determine which products were sold in the US under 35 U.S.C. § 271(a).
On August 4, 2015, in Carnegie Mellon University v. Marvell Technology Group, Ltd., the US Court of Appeals for the Federal Circuit reversed in relevant part the US District Court for the Western District of Pennsylvania's $1.54 billion damages award that included a reasonable royalty for Marvell Technology Group, Ltd.'s (Marvell) worldwide sales of infringing products that were made and delivered abroad and not imported into the US (No. 2014-1492, (Fed. Cir. Aug. 4, 2015)). The Federal Circuit remanded the case back to the district court for a partial new trial on whether the relevant products were "sold" in the US within the scope of 35 U.S.C. § 271(a). The court also reversed the district court's enhanced damages award, but affirmed its rulings on infringement, validity and Marvell's laches defense.
This case involves Carnegie Mellon University's (CMU) US Patent Nos. 6,201,839 and 6,438,180 directed to methods, devices and systems for improving data recordation in magnetic data-storage media used in computer hard-disk drives. Marvell is a California company that designs and sells semi-conductor microchips and hires foreign companies to manufacture them. Because Marvell's microchips may be unique to any one customer, Marvell designs and evaluates its chips in the US as part of a "sales cycle" with its customers, which may last several years. In 2009, CMU brought suit alleging that Marvell started using CMU's technology by at least 2001 to develop its infringing chips. Among other defenses, Marvell alleged that CMU's claims were barred by the equitable defense of laches based on CMU's unreasonable delay in bringing suit.
A jury found for CMU on infringement and validity, and awarded $1.17 billion in reasonable royalty damages based on a 50 cent royalty for each worldwide sale of Marvell's chips. The district court also:
  • Added $79 million to the damages award to bring it up to the date of judgment.
  • Awarded CMU enhanced damages of $287 million based on the lack of objective reasonableness of Marvell's defenses at trial and the jury's finding of Marvell's willful infringement.
  • Rejected Marvell's laches defense, finding that laches did not bar pre-suit damages because, although CMU delayed in filing suit, Marvell had not suffered economic prejudice and the equities favored CMU.
On appeal, the Federal Circuit affirmed the district court's infringement and validity judgments. It also affirmed the district court's rejection of Marvell's laches defense, concluding that on balance the equities favored Carnegie Mellon because Marvell's blatant and prolonged copying of Carnegie Mellon's inventions was egregious.
Regarding damages, Marvell put forth several arguments on appeal, including that:
  • The reasonable royalty base improperly included "foreign chips" that were made and delivered abroad, and not imported into the US.
  • The district court erred in awarding enhanced damages under 35 U.S.C. § 284 because Marvell's invalidity defenses during litigation were objectively reasonable.
  • The district court abused its discretion in not excluding CMU's expert's testimony on damages.
  • The evidence precluded a 50-cents-per-unit royalty, and required a flat, lump-sum fee.
Notably, in response to Marvell's "foreign chips" argument, the Federal Circuit remanded the case for a partial new trial to determine whether these chips were "sold" in the US, explaining that:
  • There is a general presumption against extraterritorial reach of US patent law.
  • If a product is being used to measure damages for infringing use of a patented method, at least one domestic action identified by 35 U.S.C. § 271(a), such as a "sale," must be satisfied even if other activities for the product occur abroad, such as "making" and "using."
  • Those chips that were imported into the US fall within the scope of 35 U.S.C. § 271(a) and were properly included in the royalty base.
  • Whether a chip was sold in the US is a factual inquiry that must be decided in a partial new trial.
On the other damages challenges raised by Marvell, the Federal Circuit:
  • Reversed the district court's enhanced damages award because on the full record Marvell had an objectively reasonable invalidity defense to infringement, holding that the district court erred by:
    • leaving the reasonableness determination with the jury;
    • requiring Marvell to have an objectively reasonable defense in mind before the litigation began; and
    • not considering Marvell's other invalidity defenses raised earlier in the litigation, including during summary judgment.
  • Held that the district court acted within its discretion in rejecting Marvell's attacks on the qualifications and methodology of CMU's damages expert and allowing her testimony.
  • Held that the district court did not err in either allowing a per-unit royalty instead of a flat fee or in determining the per-unit royalty rate, as there was sufficient evidence to support both determinations.