Semiconductor chip giant Intel was hit with a massive, $2.175 billion dollar verdict this week over infringement claims of two patents owned by VLSI Technology LLC.[1] So, the next time your patent counsel warns that “patent infringement damages can be nontrivial,” please take heed.

In April 2019, VLSI Technology filed three infringement suits against Intel in the U.S. District Court for the Western District of Texas accusing various Intel processors of infringement.[2] The two patents that ultimately won the day covered a method for minimizing operating voltage to avoid failure of memory in a data process system (U.S. Patent No. 7,523,373) and a system and method for managing clock speed in electronic devices (U.S. Patent No. 7,725,759).

The jury found that Intel (1) literally infringed the data process system patent, which means that the Intel product contained or “practiced” all of the elements of the patented invention[3] and (2) infringed the clock speed patent through the so called “doctrine of equivalents.” A product or process that does not literally infringe a patent claim may still infringe under this doctrine if the differences between the accused product and the patented invention are insubstantial.[4] The jury determined that the system within the Intel processor, although not exactly the same, was similar enough to the VLSI patent to infringe.

Based on those findings, the jury awarded $1.5B in damages for infringement of the data process system patent and $675M in damages for infringement of the clock speed patent. These are staggering amounts, even for a Silicon Valley staple like Intel.

So how did Intel wind up in this predicament? The short answer is that the U.S. (and other countries in general) take extreme lengths to protect and encourage innovation. In fact, the creation of patent rights is specifically delineated in the U.S. Constitution:

Article I Section 8, Clause 8 – Patent and Copyright Clause of the Constitution. [The Congress shall have power] “To promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries.”

To protect those rights, 35 U.S.C. § 284 provides that the minimum statutory compensatory damages award owed to a patent holder by an infringer is a “reasonable royalty.” In litigation, a reasonable royalty is generally determined based on a hypothetical negotiation occurring between the parties.[5] That is, what amount of money would it have taken for a reasonable patent holder to allow the infringer to make, use, sell its patented invention at the time before the litigation began.

But the reasonable royalty is the minimum. In addition to the hypothetical royalty damages, a patent holder may also seek “lost profits” in certain circumstances. The lost profits damages seek to compensate the patent holder for any lost sales or price erosion that resulted from the infringing product’s presence in the market.

Multiplying the reasonable royalty and lost profits for expensive tech integrated into near endless amounts of electronic devices can amount to major damages, as it did here. In truth, the damages could have been worse under patent law. Had the jury found the case to be “exceptional”, the jury would have been able to enhance the damages up to three times the amount. One example of an “exceptional case” is willful infringement, such as when an infringer knows about the patent and infringes anyway. The jury here determined that Intel was not “willful” in its infringement; otherwise, Intel may have been liable for over $6B. To put this in perspective, Intel could have been held liable for the equivalent of the entire 2019 GDP of the Maldives, which was 148th of 211 countries ranked by GDP.[6]

But that is not all. In addition to compensatory damages, a court may award reasonable attorney fees to the prevailing party under 35 U.S.C. § 285. Reasonableness is dependent upon a lot of factors, not the least of which is the amount at stake. Even a relatively low 20% contingency fee on $2.1B is over $425M.

And like a game show, there really is more. Patent infringement also carries the possibility of injunctive relief. Thus, while the billions in damages is impressive, the real power lie in VLSI’s potential ability to prevent Intel from importing, making, using, selling, offering for sale any of its products that infringe the patents.

There is no doubt that this award will be appealed and will likely be reduced in some capacity. But the moral of the story is to take patent rights and infringement seriously. First, protect your own rights. By obtaining a patent, the inventor/company may protect their rights in federal court against anyone that makes, sells, or uses the invention for a two-decade period. And, second, but equally as important, do your due diligence on new products. Should you find yourself the recipient of a cease and desists letter, call your patent attorney.

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[1] VLSI is indirectly owned by the Japanese tech firm SoftBank Group.

[2] This is one of various infringement cases brought by VLSI against Intel. Intel also attempted to invalidate the patents at the Patent Office by filing inter partes review requests on certain asserted claims across six of the patents at issue in WDTX between May and October of 2020. The Patent Trial and Appeals Board denied all of the requests.

[3] The product or process is said to infringe when it has everything mentioned in the claim.  Stiftung v. Renishaw PLC, 945 F.2d 1173, 1178, 20 U.S.P.Q.2d 1094, 1098 (Fed. Cir. 1991). On the other hand, a product or process that does not have each and every element recited in the claim should not be considered a literal infringement.  Mas-Hamilton, 156 F.3d at 1211, 48 U.S.P.Q.2d at 1015.

[4] Warner-Jenkinson Co. v. Hilton Davis Chem. Co., 520 U.S. 17, 41 U.S.P.Q.2d 1865 (1997).  Digital Biometrics, Inc. v. Indentix, Inc., 149 F.3d 8855, 1349, 47 U.S.P.Q.2d 1418, 1428 (Fed. Cir. 1998).  In making a determination under the doctrine of equivalents, the court may consider whether the accused product or process performs substantially the same function, in substantially the same way, to obtain substantially the same result as the claimed invention.  Dawn Equip. Co. v. Kentucky Farms Inc., 140 F.3d 1009, 1016, 46 U.S.P.Q.2d 1109, 1113 (Fed. Cir. 1998).

[5] Uniloc USA, Inc. v. Microsoft Corp., 632 F.3d 1292, 1312 (Fed. Cir. 2011)

[6] https://worldpopulationreview.com/countries/countries-by-gdp