Federal Circuit Issues Slightly Revised Opinion on EMVR in Power Integrations

The revised opinion in Power Integrations, Inc. v. Fairchild Semiconductor Int'l, Inc., published today, is here.  Dennis Crouch beat me to the punch in reporting on this one, and as he notes on Patently-O the only changes are as indicated below in boldface:

1.  At p.20, the sentence reading "In some circumstances, for example, where the other features are simply generic and/or conventional and hence of little distinguishing character, it may be appropriate to use the entire value of the product because the patented feature accounts for almost all of the value of the product as a whole" has been changed to "In some circumstances, for example, where the other features are simply generic and/or conventional and hence of little distinguishing character, such as the color of a particular product, it may be appropriate to use the entire value of the product because the patented feature accounts for almost all of the value of the product as a whole."

2.  At p.22, the original opinion has been changed as follows:

Where the accused infringer presents evidence that its accused product has other valuable features beyond the patented feature, the patent holder must establish that these features are not relevant to consumer choice do not cause  consumers to purchase the product. A patentee may do this by showing that the patented feature “alone motivates customers to purchase [the infringing product]” in the first place. See id. at 69. But when the product contains multiple valuable features, it is not enough to merely show that the patented feature is viewed as essential, that a product would not be commercially viable without the patented feature, or that consumers would not purchase the product without the patented feature. Id. at 68. When the product contains other valuable features, the patentee must prove that those other features did not influence purchasing decisions do not cause consumers to purchase the product.

The bottom line is that the revised opinion appears to make it slightly more difficult than it already was to use the entire market value of the infringing end product as the royalty base; or, to put it another way, renders the conditions under which courts may invoke the entire market value rule (EMVR) even more strict than they were before. 

When I blogged about the original panel opinion on July 12, I wrote:

The result doesn't seem all that surprising to me.  (Whether it's right or wrong as a matter of policy is another matter.)  To be sure, the Federal Circuit has permitted some variations from the EMVR--for example, in CSIRO v. Cisco, where the court (in a bench trial) used the entire market value as the royalty base, because the parties themselves had done so during their own (unsuccessful) negotiations over a royalty; in Ericsson v. D-Link, where the court allowed the plaintiff's expert witness to base his opinion on comparables that used the entire market value as the base; and in Exmark, where the claim covered the end product as a whole (see discussion here).  But this case doesn't appear to have any of these distinguishing features, or at least there's no mention of any such features in the opinion.

So, maybe I should have been surprised that the original panel's language about the EMVR wasn't more stringent than it was, though I'm inclined to believe that the revised opinion's alternative linguistic formulation won't make much of a practical difference.  And at the end of the day, I'm still mildly skeptical about the virtues of the EMVR at all, given that the commutative property of multiplication means that a small rate multiplied by a large base can equal the same product as a large rate multiplied by a small base.  On the other hand, the U.S. practice of using juries to determine damages awards may counsel in favor of some version of the EMVR, as the Federal Circuit has pointed out more than once, and as my coauthors and I discuss in the Reasonable Royalties chapter of the forthcoming edited volume Patent Remedies and Complex Products: Toward a Global Consensus.