Patent Damages

WDPA orders ongoing royalties

On March 31, 2014, Judge Fischer of the Western District of Pennsylvania issued a 72-page opinion in Carnegie Mellon Univ. v. Marvell Tech. Group, Ltd., Case No. CV 09-290.  The opinion covered a number of post-verdict damages issues, including pre-judgment and post-judgment interest, supplemental damages (for sales between the end of discovery and through trial), enhanced damages, and ongoing royalties.  Of particular note are the enhanced damages and ongoing royalties issues.Regarding enhanced damages, the Court referred to the issue as the “elephant in the room.”  The jury verdict was $1.17B, so even a small enhancement of that number (percentage wise) would certainly be a significant amount of damages.  While many of the Read factors are highly fact-specific and thus not likely to be applicable to future litigations, the Court’s treatment of the fourth factor – the infringer’s size and financial condition – may be.  Specifically, the Court noted an inconsistency in CMU’s arguments, stating that CMU had argued in different places that Marvell was in a strong financial position while also being a “collection risk.”  Marvell disputed it was a collection risk, but at the same time conceded it could not support a trebling of damages.

The Court appears to have done a “guess and check” analysis for the enhancement multiplier, looking to see what a doubling or trebling of damages would amount to, and then determining how that amount would impact Marvell’s market capitalization.  Since Marvell is publicly traded, the Court was able to look at Marvell’s valuation, and saw that it fluctuated in the $6-7B range, but then dropped precipitously to $3.4B following the jury verdict.  After delving through a number of hypotheticals, the Court concluded by holding that, if Marvell were to continue as a viable entity, the Court could not realistically double or treble the jury verdict:

In all, the Court believes that a penalty of treble or double damages which would increase the judgment to approximately $3.7 billion or $2.5 billion would “severely prejudice” Marvell’s business. See Varian Med. Sys., Inc., 2012 WL 1436569, at *7. Such a significant penalty would effectively value the infringement at a rate of nearly fifty percent (50%) or one-third (33%) of the current market capitalization of the entire company. Based on the historical data of the stock price and the decline of same when the jury’s verdict of $1.169 billion was announced, the Court can logically infer that the stock price and market capitalization would again decrease if such a significant penalty was imposed, and the judgment debt would then hold an even greater percentage of the total value of the company. Indeed, if the stock price returned to its low price in December 2012, trebling damages would exceed the market capitalization of the company, which was then at approximately $3.4 billion.

After going through all six Read factors, the Court came to the conclusion that an enhancement of 23% was appropriate under the circumstances.

Regarding ongoing royalties, the Court first denied the request for an injunction, chiefly because the companies were not competitors, and indeed CMU does not even practice the patents.  Marvell argued that there was no “nexus” between the infringing feature and sales of the accused product, there could be no “irreparable harm,” but the Court declined to reach that matter.  Instead of granting an injunction, the Court instead ordered ongoing royalties.  The jury verdict was $0.50 per accused chip, and CMU requested $1.50 per chip for ongoing royalties (effectively trebling for willful infringement), while Marvell advocated an ongoing royalty less than $0.50.  The Court found particularly noteworthy that, given the valuation of the “must have” and “industry standard” patents, CMU performed little if any marketing, and thus was receiving a “staggering” return on investment and thus was “largely satisfied with the exceptional returns on its minimal financial investments.”  In light of these findings, the Court found that CMU would accept the same $0.50 per chip.

Comments (0) Trackbacks (0)

Sorry, the comment form is closed at this time.

Trackbacks are disabled.