In late June, District of Delaware Chief Judge Colm F. Connolly handed down an order that may impact the damages that VLSI Technology LLC seeks fromIntelin an upcoming trial by barring VLSI's expert from presenting a key infringement theory. Meanwhile, the court has not yet weighed in on the license defense-based on Fortress Investment Group LLC's 2020 purchase of Finjan, Inc. - that Intel has raised or sought to raise in federal courts in California and Texas, as well as Delaware. The docket remains silent on that score despite repeated updates from the parties concerning the actions of Western District of Texas Judge Alan D. Albright on the license issue-for which key factual questions could soon be answered as a result of new disclosure rules specific to Judge Connolly's courtroom.
In his June 27 order, Judge Connolly granted a motion to preclude VLSI's technology expert from testifying that "Intel derives more 'benefit' from infringing the dependent claims of an asserted patent (the [7,246,027] patent) than it does from infringing the independent claims from which the dependent claims depend". Specifically, Thomas M. Conte had treated the power savings of the dependent claims (covering devices using both analog and digital "variation parameters") as additive to the power savings of the independent claims (covering a device with an analog "variation parameter" with or without a "digital variation parameter").
This framing was in error, held Judge Connolly, in two respects. First, Conte erred by equating infringement (interference with the patentee's exclusionary right) with the "benefit" Intel allegedly made from practicing the invention. "The infringing party may well have benefitted from practicing the invention, but it does not 'obtain benefits' from a finding that it infringed the patent".
Second, Judge Connolly held that "Conte compounds his first error by saying that a dependent claim provides 'a benefit' that is 'additive' to the benefits offered by the independent claim from which it depends", because the law says "the opposite": Dependent claims limit the scope of an independent claim rather than adding to them, so "any 'benefit' of a dependent claim is already covered by the independent claim from which it depends". Per Judge Connolly, "[a] car with a radio may be more valuable than a car without a radio, but the right to sell cars with and without radios is more valuable than the right to sell only cars with radios".
This error was "further compounded" because VLSI cited Conte's opinion to support its damages claims, which amounted to $1.6B for the independent claims and $2.3B for the dependent ones. "The relevant question for damages in a patent infringement case is not what the defendant gained by practicing the patent, but rather what the plaintiff lost because of the defendant's infringement"-and a "rational licensee" would not pay a higher royalty for a dependent claim than for the "broader corresponding independent claim" under a Georgia-Pacific hypothetical negotiation.
The end result, it would appear, is that VLSI has had the rug pulled out from under the portion of its damages case that rests on that $2.3B figure for infringement of the dependent claims.
Elsewhere in the opinion, Judge Connolly granted Intel's motion to preclude testimony by Conte about "about Intel's purported litigation misconduct, corporate culture, and ethics" as irrelevant and denied Intel's motion to preclude Conte's opinions about the power savings purportedly enjoyed by the accused products based on their use of the claimed technology "based on his simulation of a single Intel Product". Intel's objections, ruled Judge Connolly, "go to the weight, not the admissibility, of Conte's opinions", with Intel "free to raise these issues when it cross examines Conte at trial".
That trial looms, as does a third trial in the Western District of Texas, which was postponed earlier this spring, into the fall, due to positive COVID-19 tests on the litigation teams. In the first case filed there, Judge Albright recently made public a denial of Intel's motion to amend to add its license defense based on the Finjan acquisition, the court subsequently entering judgment in VLSI's favor. Intel has appealed to the Federal Circuit. As that license defense also hovers over the Delaware case, the parties have repeatedly apprised Judge Connolly of events in West Texas, VLSI urging the application ofres judicatato dispense with that defense and Intel countering that it is better to hear from the Federal Circuit on the issue first.
A question central to that defense might be whether Fortress controls VLSI Technology. Per Judge Albright, VLSI is a subsidiary of CF VLSI Holdings LLC, a Delaware limited liability company that is "owned by ten separate entities, which in turn are owned by pension funds and third-party investors", those pension funds "managed" by Fortress. This arrangement does not constitute ownership such that rights under a prior license with Finjan could extend to provide a defense to VLSI Technology's patent claims, according to Judge Albright, but Intel argues that a correct analysis should focus on control not ownership.
Indeed, in the Northern District of California, Intel attempts to paint a picture of the ties between Fortress and VLSI, based on discovery from the various parties to date, that conveys sufficient control but does so in a way designed to insulate Fortress itself, as well asNXP, the source of the asserted patents, from the litigation. The avenue(s) of any such control might be a bit clearer after VLSI files an updated corporate disclosure in the Delaware case.
In April, Judge Connolly posted several new standing orders, including one requiring litigants to disclose details related to any nonrecourse funding arrangements with third parties and a second requiring comprehensive disclosure of corporate control. The first has a time frame associated with its mandates, while the second is open ended and more broader in scope, requiring all "nongovernmental joint ventures, limited liability corporations, partnerships or limited liability partnerships" to include in disclosure statements "the name of every owner, member and partner of the party, proceeding up the chain of ownership until the name of every individual and corporation with a direct or indirect interest in the party has been identified".
As applied to VLSI and its parent, CF VLSI Holdings, as well as to the "ten separate entities, which in turn are owned by pension funds and third-party investors", this new standing order could result in quite a lengthy disclosure, which VLSI has yet to make. Notably, though, Judge Connolly has now handed down at least one "show cause" order taking a plaintiff to task for ignoring a minute order to comply with the new requirements for litigants assigned to his courtroom.
The Delaware docket remains just as silent as to VLSI's disclosure obligations as it does to Judge Connolly's thoughts on how to handle Intel's proposed license defense.
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