Background
Power Integrations and Fairchild Semiconductor both manufactured power supply controller chips — integrated circuits used in chargers and power adapters. After two trials, a jury found Fairchild had infringed Power Integrations’ patents and awarded damages of approximately $140 million, applying the entire market value rule (EMVR) to calculate damages based on the full revenue from Fairchild’s accused power supply products — not just the value of the infringing feature.
The entire market value rule allows a patent holder to base a reasonable royalty on the total revenue of an accused product rather than just the patented feature’s contribution, but only when the patented feature is the “basis for customer demand” for the entire product. Fairchild appealed the damages award, arguing that its chips had many valuable features unrelated to the patented aspects.
The Court’s Holding
The Federal Circuit affirmed the findings of infringement but vacated the $140 million damages award and remanded for a new damages determination. The court held that Power Integrations had not met the stringent standard required to invoke the entire market value rule. To apply the EMVR, the patent holder must prove that the patented feature — not unpatented features of the accused product — drives customer demand for the entire product. Here, Fairchild’s chips had numerous other valuable features, and the evidence was insufficient to show those features had no effect on demand.
The court reiterated the principle of apportionment: a reasonable royalty must be tied to the incremental value the patented invention adds over alternatives, not the total value of the accused product. Patent owners must present evidence that carefully isolates the patented feature’s contribution to value before invoking the EMVR to base damages on the entire product.
Key Takeaways
- The entire market value rule requires proof that the patented feature is the primary driver of customer demand — other valuable product features must not meaningfully affect demand.
- Apportionment of patent damages is the rule, not the exception; using total product revenue as a royalty base requires a high showing that typically cannot rest on expert testimony alone.
- A $140 million damages award can be vacated even when infringement is affirmed if the damages methodology is legally flawed.
- Patent holders should build their damages cases around careful apportionment from the outset, including survey evidence and technical analysis of feature contributions to customer demand.
Why It Matters
Patent damages in technology cases involve complex products with many valuable features — smartphones, chips, software platforms. The entire market value rule, if broadly applied, can generate enormous damages by multiplying a royalty rate over billions of dollars in total product sales. Power Integrations v. Fairchild reinforced that courts and juries cannot use total product revenue as the royalty base unless the patent holder proves the patented feature uniquely drives consumer decisions.
The decision is significant for any industry where accused products are complex and multifeatured — semiconductors, consumer electronics, software. It provides defendants with a strong basis to challenge damages calculations that fail to carefully apportion the value of the patented versus unpatented features, helping to prevent potentially runaway damages awards in patent cases.