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CalTech Case Underscores Billion-Dollar Patent Awards’ Fragility

Feb. 7, 2022, 10:00 AM

The Federal Circuit’s decision to throw out the California Institute of Technology’s billion-dollar patent award against Apple Inc. and Broadcom Inc. highlights the difficult road patent owners face after winning giant damages at infringement trials.

The U.S. Court of Appeals for the Federal Circuit ordered a new damages trial in a case CalTech brought over Wi-Fi technology. A jury in 2020 told Apple to pay $838 million in royalties, while Broadcom, its chip supplier, was on the hook for $270 million.

CalTech’s damages theory was “legally unsupportable,” the Federal Circuit said.

It’s the latest high-dollar patent award to fall at the Federal Circuit. No patent verdict over $1 billion has ever survived, either settling for less money or being thrown out on appeal. Legal experts say the Federal Circuit is sensitive to complaints, from tech companies in particular, that damages awards are out of control.

A billion-dollar award is “sexy but it’s just begging for scrutiny,” said Bernard Chao, a professor at the University of Denver Sturm College of Law.

Courts are becoming more focused on the economic theories presented to juries, said Amy Landers, a law professor at Drexel University Kline School of Law. High-stakes cases, in particular, can provide the Federal Circuit with a chance to lay out guidance.

“It’s an opportunity for the Federal Circuit to instruct district courts about the level of scrutiny that is appropriate for these expert opinions,” Landers said.

No Justification

CalTech alleged infringement by Broadcom chips and Apple devices that include those chips. The university’s damages were based on a “two-tiered” model, in which different royalty rates were sought from Broadcom and Apple.

CalTech’s position was that it would have negotiated with Broadcom at the chip level and with Apple at the device level. The result was a $0.26 per unit rate for Broadcom, with Apple paying a rate of $1.40 per unit.

Vacating the damages award, the Federal Circuit said a higher royalty generally isn’t “available for the same device at a different point in the supply chain.” Nothing suggests Broadcom and Apple wouldn’t have negotiated a single license and a single rate for the same chips, the court said.

Karl Fink, co-chair of the litigation practice group at Fitch Even Tabin & Flannery LLP, said he was surprised the court didn’t spend more time justifying its decision to throw out the award. That section of the opinion, which spanned about three pages, was light on discussion of the evidence and supporting case law, he said.

“The bottom line is there is almost no justification cited in that ruling, other than they just don’t think that there can be two different royalty rates assessed against the same chip that’s being essentially incorporated into different products,” Fink said.

The Federal Circuit’s holding also raises a question about what would have happened if CalTech had sued Apple and Broadcom separately.

“Are they saying Apple would’ve been bound by a decision on whatever the reasonable royalty rate was against Broadcom?” Fink asked. “I would find that pretty hard to believe.”

Patent holders suing multiple companies in the same supply chain may need to be cautious following the ruling, some attorneys suggested. The Federal Circuit appeared to be concerned about overcompensating patent holders in these types of situations.

“If I were advising the patentee, I would say be very careful about trying to recover from both a prior and a later party in a case involving a single product moving through a supply chain without being able to separate out that you haven’t already recovered the full amount from one of the parties,” Landers said.

CalTech said in a statement it was pleased the court upheld the validity of its patents and the bulkt of the infringement findings. The university said it’s “confident that the value of the patents will be fully recognized at the damages retrial.”

Paying Attention

CalTech’s verdict was part of a large run of patent awards in district courts that caught the attention of investors.

One month earlier, a jury decided Gilead Sciences Inc. owed Bristol-Myers $752 million for infringing a patent on revolutionary cancer treatments. The Federal Circuit wiped out the award, which grew to $1.2 billion after enhanced damages, in August because it said the patent is invalid.

Appeals of other high-value awards are in the Federal Circuit pipeline.

Cisco Systems Inc. is appealing a $1.9 billion penalty a Virginia federal judge handed down after finding the company copied Centripetal Networks Inc.’s patented cybersecurity features. Intel Corp. has also promised to appeal a $2.18 billion loss to VLSI Technology LLC in a case over chip-making technology.

Apple and other tech companies have fought to reduce the amount that patent owners can collect in damages. They argue patent owners too often get big awards when the invention is for a small part in a complicated device.

The Federal Circuit is aware of those concerns, Chao said.

“The result is in the big cases the Federal Circuit pays attention,” he said. “But I think in the smaller value cases, the scrutiny is not nearly as serious.”

To contact the reporter on this story: Matthew Bultman in New York at mbultman@correspondent.bloomberglaw.com

To contact the editors responsible for this story: Keith Perine at kperine@bloomberglaw.com; Renee Schoof at rschoof@bloombergindustry.com