Will Huge Patent Award Roil the Supply Chain?

Here's a twist in the patent wars. A federal jury in Pittsburgh in late December ordered chipmaker Marvell Technology Group Ltd. to pay nearly $1.17 billion -- yes, with a "B" -- after it lost a patent infringement case brought by Carnegie Mellon University. The award is one of the largest ever in a patent case, topping the $1 billion award Apple got against Samsung.

The size of the award is not the only striking thing about this case, although it probably wouldn't have received so much attention if it hadn't been for the stratospheric figure. The case is also interesting because of what it does not have:

• It does not involve sexy smartphone patents. Rather it involves two boring (except maybe to an engineer) patents on noise predictive detection in disk drive controllers. This technology increases accuracy in retrieving data from drives. (The specific patent numbers are 6,201,839 and 6,438,180.)
• It does not involve high-profile, multibillion-dollar OEMs slugging it out in the courts.
• It does not involve a patent troll going after a brand-name company. Instead, it is a highly respected East Coast academic and research institution of higher learning versus an obscure (at least to most consumers) Silicon Valley chip company.

The award could go even higher, up to triple the current amount, because the jury ruled that Marvell intentionally infringed the patents. In February, CMU requested just that, as well as a permanent injunction against the infringing Marvell chips, according to Reuters. For its part, Marvell has filed a number of post-trial motions, including asking for a mistrial and for a reduction in damages. The judge has set a May 1 hearing to consider the issues. Marvell says it will appeal the case, if need be, to the US Court of Appeals for the Federal Circuit.

Trolling for Dollars

Carnegie Mellon University was awarded $1.17 billion in a patent case
against Marvell, an outcome that the IC company is appealing.

The treble-damage award, including interest requested by CMU, would exceed the current endowment of the university and nearly equal Marvell's $3.8 billion market capitalization, according to the Patently O law blog.

It's not clear how or even whether an injunction would affect the chip company. The patents are used in its "read channel and hard-disk drive chips that include media noise processor (MNP) or non-linear Viterbi detector (NLD) features," according to information on Marvell's website. There, Marvell plays down the possibility, saying that it has strong grounds upon which to oppose an injunction.

"Since CMU does not make any actual products that compete with Marvell's products, CMU is not suffering any 'irreparable harm,' which is a prerequisite for an injunction," Marvell contends.

The university said that at least nine Marvell chips use the patents. RBC Capital Markets analyst Doug Freedman says the Marvell chips affected represent a substantial proportion of the company's disk drive revenues, which in turn constitute about 50 percent of Marvell's total revenue. An injunction would probably have little impact on Marvell, however, because neither its chips nor the disk drives that use them are manufactured in the United States. It could, however, have an effect down the supply chain, on Marvell's disk drive customers: Western Digital and Seagate.

"An injunction's going to hurt them more than it's going to hurt anybody else," says Freedman. Even then, however, the effect could be minimal because most drives are integrated into systems before being shipped to the United States.

Despite the huge award, the case will most likely fade from the headlines without causing much of a ripple in supply chains. After all, most such huge damage awards by juries are either dramatically reduced (a judge recently slashed the award in the Apple-Samsung case to $600 million) or set aside completely.

Often, the parties end up settling. That's what Freedman thinks is the most likely outcome in this case as well, and for an amount way below a billion dollars.

"Our thought is that this [case] settles for an amount that is completely palatable to the [Marvell] investor," he says.

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