INTRODUCTION

In 2009, Carnegie Mellon University sued Marvell for infringement of U.S. Patent Nos. 6,201,839 and 6,438,180, relating to methods that reduce “noise” in magnetic recording systems.[1] The jury found that Marvell was in fact selling infringing, semiconductor products both domestically and abroad.[2] The jury awarded $1.17 billion in damages to Carnegie Mellon University, corresponding to 50 cents for each product sold.[3] Soon thereafter, the judge added $287 million in enhanced damages for willful infringement. The total judgment was $1.54 billion[4]; the largest judgment in the history of patent law. Marvell appealed.

On appeal, Marvell argued that the royalty rate was too high and should not have been applied to products sold outside of the United States.[5] On August 4, 2015, the Federal Circuit affirmed the judgment of infringement and validity; reversed the grant of enhanced damages; and vacated in part and remanded the royalty award.[6]

Analysis

The Federal Circuit threw out the enhanced damages under the governing willfulness standard.[7] Statute states “the court may increase the damages up to three times the amount found or assessed” upon proof of willfulness.[8] Willfulness requires “clear and convincing evidence that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent” and “this objectively defined risk…was either known or so obvious that it should have been known.”[9]

In the instant case, Marvell’s defense to the infringement claims was “objectively reasonable” so the burden of proof for willfulness was not met.[10] In its defense, Marvell argued there was an invalidating prior art reference.[11] The Federal Circuit held there was uncertainty regarding what the reference disclosed such that the invalidity defense was objectively reasonable, though ultimately rejected.[12]

The Federal Circuit left $278.4 million in damages in tact because Marvell must pay royalties on the products that were imported and sold in the United States.[13] However, the award was vacated in part due to an issue of extraterritoriality.[14] Marvell had argued that the court cannot measure damages based on the total number of products sold worldwide; damages are calculated relative to the number of products sold in the United States.[15] The Federal Circuit agreed and ordered a new trial to recalculate the damages on products that were not imported into the United States.[16]

Statute mandates that anyone who “uses, offers to sell, or sells any patent invention, within the United States or imports into the United States any patented invention during the term of the patent therefor, infringes the patent”.[17] Thus, the court must determine whether any of the activities listed in § 271(a) occurred in the United States.[18] For example, there was some evidence that Marvell had designed, tested, and marketed the infringing products in the United States.[19] Many of Marvell’s investors were companies based in the United States, including Google Inc., Microsoft Corp., and Broadcom Corp.[20] There was also evidence suggesting that Marvell made contractual commitments for specific volumes of products, signed in the United States.[21]

Implications

The day the Federal Circuit issued its opinion, Marvell shares dropped 2.4 percent in Nasdaq.[22] There will likely be a settlement between Marvell and Carnegie Mellon University because it is too expensive for either party to continue litigation.[23] It would be financially favorable for Marvell to license the technology from the university.

The outcome of this case is significant because domestic companies will now take extra measures to insulate foreign sales from United States patent law.[24] Domestic companies may be encouraged to move their design, testing, and marketing activities outside of the United States.[25] Alternatively, domestic companies may conduct all contract negotiations outside of the United States.[26]

[1] See Carnegie Mellon University v. Marvell Technology Group Ltd., 14-1492, *10, U.S. Court of Appeals for the Federal Circuit (Washington), https://www.bloomberglaw.com/document/X1Q6NDHQ1182/.

[2] See id. at *11.

[3] Id.

[4] Id. at *3.

[5] Id. at *11.

[6] Id. at *3.

[7] Id.

[8] 35 USC § 284

[9] Carnegie Mellon University, supra at *24 (quoting In re Seagate Tech., LLC, 497 F.3d 1360, 1371 (Fed. Cir. 2007)(en banc)).

[10] Id. at *25.

[11] Id. at *27.

[12] Id.

[13] Id. at *4.

[14] Id.

[15] See id. at *40.

[16] See id. at *38.

[17] 35 USC  § 271(a).

[18] Carnegie Mellon University, supra at *38.

[19] Id. at *15.

[20] Susan Decker, Marvell Gets Reduced Damages in $1.17 Billion Patent Verdict (2), BLOOMBERG NEWS ENTERPRISE, (August 4, 2015, 11:53 AM), https://www.bloomberglaw.com/ip_law/document/NSKETL6KLVRG/.

[21] Carnegie Mellon University, supra at *33.

[22] Jonathan Stempel, Marvell Technology wins cut in $1.54 billion Carnegie Mellon patent award, REUTERS, (August 4, 2015, 1:43 PM), http://www.reuters.com/article/2015/08/04/us-marvell-technlgy-carnegiemellon-idUSKCN0Q91K220150804/.

[23] See Decker, supra.

[24] See id.

[25] See id.

[26] See id.