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ATMEL CORPORATION v. SILICON STORAGE TECHNOLOGY

May 7, 2002

ATMEL CORPORATION, PLAINTIFF,
V.
SILICON STORAGE TECHNOLOGY, INC., DEFENDANT.



The opinion of the court was delivered by: Samuel Conti, United States District Judge

ORDER RE: PREJUDGMENT INTEREST, ENHANCED DAMAGES AND ATTORNEY FEES

I. INTRODUCTION

On April 26, 2002, a jury awarded Plaintiff Atmel Corporation ("Atmel") $19,969,640 in compensatory damages in its patent infringement lawsuit against Silicon Storage Technology, Inc. ("SST"). Now before the Court is the issue of pre-judgment interest, Atmel's request that its damages be enhanced to reflect the jury's willful infringement finding and Atmel's attorney fees demand. For the reasons discussed more fully below, the Court awards Atmel pre-judgment interest in the amount of $9,415,758 and willfulness damages in the amount of $7,092,360. The Court denies Atmel's request for attorney fees.

II. BACKGROUND

The jury awarded two kinds of damages — price erosion and a reasonable royalty — each distributed over two different time periods. For the period beginning September 12, 1994 until March 1998, the jury awarded Atmel $4,184,720 in reasonable royalties and $10 million in price erosion damages, totaling $14,184,720 for the period. For the period beginning March 1998 until the infringement ended, the jury awarded Atmel $5,384,920 in reasonable royalties and $400,000 in price erosion damages, totaling $5,784,920 for the period.*fn1 The jury also found that SST willfully infringed the '811 and '829 patents.

III. LEGAL STANDARD

A. Pre-judgment Interest

According to the patent statute's damages provision, it is the job of the court to fix interest and costs on a judgment. 35 U.S.C. § 284. This includes pre-judgment interest, which according to the Supreme Court, "should ordinarily be awarded where necessary to afford the plaintiff full compensation for the infringement." General Motors Corp. v. Devex Corp., 461 U.S. 648, 654 (1983). A court is afforded complete discretion to decide the interest rate to be used. Studiengesellschaft Kohle, m.b.H. v. Dart Indus., Inc., 862 F.2d 1564, 1580 (Fed. Cir. 1988).

B. Enhanced Damages

In addition, the court may, in its discretion, increase a jury's damage award by up to three times if the jury finds that the infringement was willful. 35 U.S.C. § 284. A court is not required to do so, however. Odetics, Inc. v. Storage Tech. Corp., 185 F.3d 1259, 1274 (Fed. Cir. 1999) ("The law is clear that while willful infringement may allow enhanced damages, such a finding does not compel the district court to grant them."); State Indus. Inc. v. Mor-Flo Indus. Inc., 948 F.2d 1573, 1576 (Fed. Cir. 1991).

In deciding whether enhanced damages should be awarded, a court should consider the totality of the circumstances including: 1) whether the infringer deliberately copied the ideas or design of another; 2) whether the infringer, when he knew of the other patent's protection, investigated the scope of the patent and formed a good-faith belief that it was invalid or that it was not infringed; 3) the infringer's behavior as a party to the litigation; 4) defendant's size and financial condition; 5) the closeness of the case; 6) the duration of defendant's misconduct; 7) remedial action by the defendant; 8) defendant's motivation for harm; and 9) whether defendant attempted to conceal its misconduct. Read Corp. v. Portec, Inc., 970 F.2d 816, 826-27 (Fed. Cir. 1992), abrogated in part on other grounds by Markman v. Westview Instruments, Inc., 52 F.3d 967 (Fed. Cir. 1995) (en banc) (internal citations omitted).

C. Attorney Fees

The patent law provides that "[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party." 35 U.S.C. § 285. Exceptional circumstances include "inequitable conduct before the PTO; litigation misconduct; vexatious, unjustified, and otherwise bad faith litigation; a frivolous suit or willful infringement." Epcon Gas Sys., Inc. v. Bauer Compressors, Inc., 279 F.3d 1022, 1034 (Fed. Cir. 2002) (citing Hoffmann-La Roche Inc. v. Invamed Inc., 213 F.3d 1359, 1365 (Fed. Cir. 2000)).

IV. DISCUSSION

A. Pre-judgment interest

The parties' primary dispute centers not around whether pre-judgment interest should be awarded at all, but rather, the rate at which it should be assessed. At a post-trial hearing held April 29, 2002, the Court heard evidence from the parties and their experts on the appropriate measure of pre-judgment interest. The Court has also considered the parties' briefs submitted prior to the hearing.

Atmel argues that it should be awarded pre-judgment interest on its $9,569,640 reasonable royalty judgment at the prime rate compounded quarterly and pre-judgment interest on its $10,400,000 price erosion judgment at the prime rate compounded monthly.*fn2 SST argues that it should have to pay interest at the London Interbank Offer Rate, ("LIBOR"),*fn3 or at the very most, LIBOR plus one percent.

In its brief and at the hearing Atmel argued that the prime rate reflects the approximate rate at which it had to borrow money during the period of infringement. Atmel referred the Court to its 1994 and 1995 Annual Reports which indicate that the company was borrowing at rates between 5.6 and 10 percent.*fn4 (Decl. of Steven G. Mason in Supp. of Atmel's Prejudgment Interest Brief ("Mason Decl."), Ex. B:13, Ex. C:13-14.) In those years, according to Plaintiff's research, the prime rate fluctuated not far off, or between 6 and 9 percent. (Mason Decl., Ex. K.) For sake of comparison, during 1994 and 1995 LIBOR fluctuated between 5.5 and 7 percent. (Amended Declaration of Paul K. Meyer in Support of Def.'s Brief Respecting Pre-Judgment Interest ("Meyer Decl.", Ex. A.)

SST sees things differently. SST claims that Atmel has never borrowed at prime, but has consistently borrowed at lower rates closer to LIBOR. As evidence, SST presented the testimony of its expert, Paul Meyer, who studied Atmel's reports in detail and drew from them the conclusion that Atmel borrowed at or around LIBOR during the years in question at amounts ranging from $16 to $138 million. SST's theory is that any money it would have owed Atmel during the damages period would have gone toward reducing these debts. (4/29/02 Hearing, Tr. 36:2-5.)

As an initial matter, the Court finds it difficult, and indeed, ineffectual, to attempt to extrapolate from Atmel's Annual Reports any kind of accurate measure of the rate of interest that would have been applied to the "loaned" judgment in question, given that the instruments described in the reports arose under circumstances that vary from those in this case; some of the loans described there were collateralized, others were discounted, and still others reflect capital leases. Nor is the Court inclined to guess at how Atmel might have used the money had it benefitted from having it at the time. The Court will focus, instead, on attempting to come up with a figure that best reflects the specific circumstances of this case, what amounts to a $20 million loan to another corporation.

To begin with, the Court declines to entertain the possibility that the straight LIBOR rate applies. SST's expert, Mr. Meyer, conceded as much when he said "I believe that [Atmel] borrowed at LIBOR plus." (4/29/2002 Hearing, Tr. 48:22.) The only matter left to decide, therefore, is whether the interest rate should be LIBOR "plus" or prime.

At the hearing, when asked to justify the prime rate as opposed to a treasury bill, Atmel's royalties expert Stephen Degnan explained that the prime rate reflects the amount of risk involved in corporate loans:

Well, it gets a little complicated, but it basically is one of the elements that go into the risk of a particular security. Obviously the federal government has no risk; they can continue to print money. The difference between the prime rate, generally, and the T-Bill rate is that . . . businesses fail. And so their interest is not — you don't get your interest back. You don't get your principle back. You don't get anything back. And so that's the difference between those, is the risk, the market risk and the unique risk of the underlying company.

(4/29/2002 Hearing, Tr. 18:11-20.)

The Court is persuaded that a loan to SST would have borne a greater risk of default than treasury bills, or even than that contemplated by London banks lending money amongst themselves.*fn5 It is true that when pressed, Mr. Degnan did not give a direct response to the Court's inquiry about why the Annual Reports never showed a rate as high as prime in certain years. See, e.g., Mason Decl., Ex. C, 13-14 (listing interest rates on Atmel's loans ranging from 5.6 to 8.2 percent). As discussed above, however, the circumstances surrounding the loans in the Annual Reports were different; two of the notes were discounted, one was based on LIBOR, one was a capital lease, and one was collateralized with certain manufacturing equipment. Id.

As for SST's argument that LIBOR "plus one" reflects the best estimate of pre-judgment interest, on cross-examination SST's expert agreed that the rates disclosed in Atmel's annual reports did riot account for losses sustained in currency fluctuations (a risk inherent in LIBOR, PIBOR and other foreign currency-based instruments) and he admitted that he did not consider in his calculations the effect of the memory-market crash in 1997-1998, which forced Atmel to incur heavy losses. (4/29/2002 Hearing, Tr. 49:4-24; 51:19-24). Perhaps most importantly, however, the evidence established that SST's reliance on Atmel's LIBOR loans detailed in its annual reports may have been misplaced. As Mr. Meyer acknowledged, Atmel reported that its loans were LIBOR based, or "LIBOR plus some amount." (Id. at 48:6-16.) While Mr. Meyer did account for this in his alternative LIBOR plus-one-percent calculations, the Court is not convinced that the additional one percent is enough of a boost, especially given the added risk that would have been involved in such a business-to-business loan.

Plaintiff's price erosion damages expert Dr. Marc Vellrath also testified to the risk involved in a loan to SST. According to Dr. Vellrath:

The prime rate, in my view, compensates Atmel both for the time value of money here and for the business risk that Atmel bore here. That's the problem with the Treasury Bill rate, in my opinion, or the LIBOR rate. The LIBOR rate — the Treasury Bill rate is a government rate, and those who lend to the government are not subject to business risk.
The LIBOR rate is the London Inter-Bank Offer Rate. It's for overnight loans between very large and secure banks, so that rate also, although it is a little bit higher than the T-Bill rate, does not really include any return for business risk. The prime rate, on the other hand, does include a return for business risk, which Atmel bore in this case.
In addition, as Mr. Degnan pointed out, some of Atmel's borrowing did occur, apparently, at the prime rate. There are references to the prime rate in Atmel's report, so it struck me that ...

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