In a decision addressing several damages-related issues, the U.S. Court of Appeals for the Federal Circuit held that a patentee’s damages award cannot be based on extraterritorial sales, that an expert report can not rely on speculation or unreliable evidence, and that the proper starting point for calculating damages from price erosion is the date of first infringement.  Power Integrations, Inc. v. Fairchild Semiconductor Int’l, Inc., Case Nos. 11-1218, -1238 (Fed. Cir., Mar. 26, 2013) (Reyna, J.).

After a jury trial, Power Integrations was initially awarded total damages of $34 million. Fairchild moved for remittitur, judgment as a matter of law (JMOL), or, in the alternative, a new trial on damages. The district court agreed that the damages award was contrary to law and, based on an inducement theory presented at trial, remitted the jury’s original award by 82 percent, resulting in a total award to Power Integrations of a little more than $6 million.  Power Integrations appealed. 

Power Integrations argued that the original jury award was appropriate because it was foreseeable that Fairchild’s domestic infringement would cause Power Integrations to lose sales in foreign markets.  The Federal Circuit rejected this argument, finding that “entirely extraterritorial production, use, or sale of an invention … is an independent, intervening act that, under almost any circumstances, cuts off the chain of causation initiated by an act of domestic infringement.”

At trial, Power Integrations had relied upon expert testimony to support its damages theories.  The Federal Circuit found this testimony unreliable for two reasons.  First, the expert was unable to clearly identify the source of certain documents he had relied upon in making his calculations.  Second, the expert had made two unsupported assumptions.  The expert assumed that every mobile phone shipped with a charger.  The expert also assumed, contrary to the evidence, that each of those chargers incorporated an infringing Fairchild power circuit.

The Federal Circuit explained that these assumptions were impermissibly speculative:  “[I]n the end, we are left with an expert opinion derived from unreliable data and built on speculation” and concluded that the district court abused its discretion when it admitted the Power Integrations expert’s report on damages.

The panel also found the same damages report insufficient to sustain an award under a theory of induced infringement.  On this issue, the expert again relied on the assumptions discussed to support his conclusion that 18 percent of Samsung’s worldwide charger sales were U.S. charger sales incorporating Fairchild’s infringing circuits.  As the Federal Circuit explained, “[A]lthough direct evidence of infringement is not required, we consistently require that the record demonstrate something more than speculation that infringing activity has occurred.”  The Federal Circuit concluded that the district court erred in relying upon the 18 percent figure in calculating its remittitur.

In calculating damages from price erosion, the district court had excluded economic or market data prior to the date Fairchild was notified of its infringement.  In so ruling, the court prohibited Power Integrations from introducing evidence that Fairchild’s pre-notice infringing sales had depressed the market price of the patented products.  In reversing the district court, the Federal Circuit explained that “price erosion analysis relating to damages arising from post-notice infringement must measure price changes against infringement-freemarket conditions, and thus the proper starting point of such a price erosion analysis is the date of first infringement.”