The Software IP Report

Non-Patented Features and the Entire Market Value Rule

By Peter Keros

Categories: Patent Damages, Patent Infringement, The Software IP Report

Evidence that a patented feature drives customer demand is insufficient to justify damages under the entire market value rule (EMVR) when non-patented features may drive customer demand. Power Integrations, No. 2017-1875 (Fed. Cir. July 3, 2018). The Federal Circuit vacated a damages award for patent infringement from a jury that relied on the EMVR, noting that while the plaintiff showed that the patented feature drove demand of the accused products, the plaintiff did not show that valuable features of the accused products were not relevant to customer demand.

Plaintiff Power Integrations sued Defendant Fairchild for infringement of U.S. Patent Nos. 6,212,079 and 6,538,908, directed to power supply controller chips. A jury found infringement of the ‘079 patent and awarded a reasonable royalty of $139.8 million. The jury’s award was based on Plaintiff’s expert testimony of EMVR.

In general, damages are apportioned to the patented feature of the accused product. In a multi-component accused product, the royalty is limited to the smallest salable unit embodying the patented invention. However, when the plaintiff shows that the patented feature is the sole driver of customer demand, the plaintiff can ask for a royalty based on the entire product under the EMVR. Relying on the EMVR requires providing evidence that the patented feature drove the demand for the entire product.

The Court held that, despite Plaintiff’s evidence that the patented feature drove most of the demand for the accused product, the EMVR is only applicable when no other non-patented features were relevant to customers choosing the accused product. The parties agreed that the accused products had several additional features, and Plaintiff did not show that those features did not affect customer demand of the accused products. Because those features could drive demand for the products, the EMVR was not available and the Court vacated the damages award.

Lessons for Practice

The Federal Circuit again reminds us that damages calculations need to have sufficient evidential support. EMVR in particular is difficult to prove, as plaintiffs must provide evidence to show both that the patented feature drove demand and that non-patented features were irrelevant when determining damages. This case provides insight into the specific (and rare) situations where courts should apply EMVR, and reaffirms the Court’s admonishment to parties toward better apportionment of damages.