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October 2018: Vacatur Victory – $139.8 Million Patent Infringement Judgment Zapped on Appeal

October 2018

On July 3, 2018, the firm persuaded the Federal Circuit to unanimously vacate a $139.8 million patent infringement judgment against our client Fairchild Semiconductor, a subsidiary of ON Semiconductor. Fairchild manufactures power supply controller chips, which are integrated circuits used in chargers for electronic devices. These chips transform alternating current electricity, which comes from an AC outlet, into direct current electricity, which is needed to power electronic devices, such as cell phones. Fairchild’s rival, Power Integrations, accused it of infringing two patents related to switching regulation in power supply controller chips. After a jury trial, the Northern District of California entered a $139.8 million judgment against Fairchild for infringing both patents. Fairchild retained Quinn Emanuel to represent it on appeal to the Federal Circuit.

Power Integrations had obtained its sizeable judgment through a damages model that relied on application of the “entire market value rule.” That rule allows a patentee to recover a royalty measured against the entirety of the defendant’s revenue for the accused product if the patentee can prove that the patented feature is the basis for consumer demand for the defendant’s product. Where that showing is not made, the damages for patent infringement must be apportioned to reflect only the value of the patented feature. Power Integrations argued that its patented frequency reduction feature, which it contended allowed for significant power savings, drove consumer demand for Fairchild’s power supply controller chips.

On appeal, the Federal Circuit accepted Quinn Emanuel’s argument that the record was devoid of substantial evidence that the patented frequency reduction was the basis for demand for Fairchild’s products. The court agreed that the Fairchild products had other valuable features, in particular a “jittering” feature that Power Integrations had alleged in another lawsuit infringed its patents and had substantial value. Power Integrations failed to prove that these other features did not affect consumer demand for Fairchild’s products. The Federal Circuit therefore vacated the entire nine-figure judgment.

The decision represents not only a significant win for Fairchild in its patent war with Power Integrations, but is also the latest in a series of important Federal Circuit damages decisions narrowing the entire market value rule. It strongly reinforces for future cases the principle that patent damages should not exceed the value of the patent’s inventive contribution, and that apportionment is the rule and entire market value the exception.