By Jonathan Stempel
(Reuters) - A U.S. appeals court upheld a jury verdict that Marvell Technology Group Ltd infringed two hard disk drive patents held by Carnegie Mellon University, but said a $1.54 billion damages award against the chipmaker should be reduced significantly.
In a 3-0 vote, the U.S. Court of Appeals for the Federal Circuit on Tuesday said Marvell must pay at least $278.4 million, representing a 50-cent-a-chip royalty on 556.8 million chips imported into the United States for use in the drives.
The court ordered a new trial to determine the extent to which Marvell chips made abroad and not imported may ultimately have been the subject of a domestic "sale," justifying higher royalties for Pittsburgh-based Carnegie Mellon.
Jurors originally awarded Carnegie Mellon $1.17 billion in Dec. 2012, and U.S. District Judge Nora Barry Fischer in Pittsburgh boosted that sum to $1.54 billion in March 2014 to reflect Marvell's alleged willful infringement plus interest.
Writing for the appeals court, however, Circuit Judge Richard Taranto said Fischer erred in awarding "enhanced damages" because Marvell had an "objectively reasonable" defense to the university's infringement claims.
Marvell reported $408.8 million of operating income for the fiscal year ended on Jan. 31.
Broadcom Corp (NASDAQ:BRCM), Google Inc (NASDAQ:GOOGL), Microsoft Corp (NASDAQ:MSFT) and other technology companies supported Marvell's appeal.
They argued that upholding the verdict and allowing damages based on worldwide sales would encourage U.S. companies to move research and development companies outside the country.
The appeals court returned the case to Fischer.
Marvell shares were down 30 cents, or 2.4 percent, at $12.18 in afternoon Nasdaq trading.
In separate statements, Marvell said it was pleased that damages were reduced, while Carnegie Mellon's law firm K&L Gates said the school is pleased that the infringement finding was upheld. Both sides are reviewing their legal options.
The case concerned patents issued in 2001 and 2002, and related to how accurately hard disk drive circuits read data from high-speed magnetic disks.
Carnegie Mellon said at least nine Marvell circuit devices incorporated the patents, letting the company sell billions of chips without permission. The university sued in 2009.
Marvell had said the patents were invalid and that the 50-cents-a-chip royalty rate was too high and should not have applied to chips made and sold abroad.
The company is headquartered in Bermuda, and its main U.S. operating unit is based in Santa Clara, California.
The case is Carnegie Mellon University v Marvell Technology Group Ltd et al, U.S. Federal Circuit Court of Appeals, No. 2014-1492.