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Fairchild Penalized for Patent Infringement

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A jury of the North California District Court recently judged Fairchild Semiconductor International Inc. (FCS) guilty of willfully infringing two patents concerning power supply integrated circuits held by rival firm Power Integrations Inc. (POWI). Power Integrations had filed other lawsuits concerning patent infringement against Fairchild in the past as well.

The Federal District court has imposed $105 million in damages. Based on the discovery of willfulness on the part of Fairchild concerning the infringement, Power Integrations argue that this penalty could be enhanced to triple the current level of damages. The jury also rejected Fairchild’s counterclaims alleging infringement by Power Integrations.

Post the jury’s favorable verdict, Power Integrations intends to seek a permanent injunction forbidding Fairchild from selling over 140 chips that it claims are implicated in the decision.

Thoroughly dissatisfied with the outcome, Fairchild feels the judgment to be erroneous on the grounds of failing to account for distinction in the indicted products, and intends to dispute several facets of the verdict during post-trial review and petition.

Former Judgments

Patent controversies between the two companies can be traced back to 2004. In a previous patent infringement case between the two, a jury awarded Power Integrations $34 million in damages in 2006, as well as permanent injunction against more than 100 infringing Fairchild products.

However, in Mar 2013, the United States Court of Appeals for the Federal Circuit revoked virtually the entire damages imposed on Fairchild, negating the original verdict. The Federal Circuit passed this judgment on the grounds that Power Integrations had failed to cite any case law supporting its theory that damages for induced infringement can be awarded for sales in foreign markets, regardless of any connection to infringing activity in the U.S.

Challenging the ruling, Power Integrations had filed a certiorari petition, insisting that the Federal Circuit had set a perilous precedent with the March ruling that forfeited damages based on Fairchild's sales of semiconductor chips in Asia. Power Integrations was adamant that the ruling defied the Supreme Court’s precedent that victims of infringement are entitled to full compensation for their losses, and that whether the harm was in domestic or foreign markets was immaterial.

Looking Ahead

Fairchild has intense disagreements with Power Integrations over the legitimacy and scope of several patents that are the subject of lawsuits, and intends to vigorously defend its own patents against infringement. On the other hand, Power Integrations is confident that the latest ruling and the accompanying penalties will force Fairchild to review its business practices and begin respecting intellectual property rights. For now, it seems that the chain of suing and counter-suing between the rivals is set to continue.

At present, Fairchild carries a Zacks Rank #4 (Sell), while Power Integrations sports a Zacks Rank #3 (Hold). Some other stocks that look promising in the Electronics-Semiconductor industry include NXP Semiconductors NV (NXPI) and ON Semiconductor Corp. (ONNN). While NXP sports a Zacks Rank #1 (Strong Buy), ON Semiconductor carries a Zacks Rank #2 (Buy).

Read the Full Research Report on FCS
Read the Full Research Report on NXPI
Read the Full Research Report on ONNN
Read the Full Research Report on POWI

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