The News: In early December, a US appeals court threw out a $2.18 billion patent-infringement award won by patent owner VLSI Technology against Intel Corp., overturning one of the largest verdicts in the history of US patent law. The US Court of Appeals for the Federal Circuit reversed the jury’s 2021 verdict that Intel infringed one VLSI patent and sent the case back to Texas for a new trial to determine how much Intel owes for infringing a second VLSI patent. VLSI had sued Intel in multiple US courts, accusing it of infringing several patents relating to semiconductor technology. A summary of the ruling is available here.
Big Stakes in Tumultuous VLSI vs. Intel $2.8B Patent Infringement Case
Analyst Take: Another complicated intellectual property (IP) case against a US chipmaker makes its way through the US court system, highlighting some of the system’s consistent vulnerabilities yet again. Before I dive into the broader geostrategic lens through which I view this case and others like it, let us first explore some of the basic facts of the case, how we got here, and how this case in particular fits into VLSI’s basket of litigation against Intel.
In the initial trial, a Texas jury found that some technology in Intel microprocessors infringed patents that VLSI had acquired from Dutch chipmaker NXP Semiconductors, for which it subsequently awarded VLSI a total of $2.18 billion in damages. The judgment was split between $1.5 billion for a memory voltage management patent and an additional $675 million for a patent focused on controlling power-sharing between processors on the same board. According to court documents, the IP at the center of the complaint could be found in “various Intel microprocessors with ‘Lake’ in their names,” giving us some sense of scope and stakes for Intel.
VLSI claimed that the IP was responsible for helping the chips gain roughly 5.5% in performance and power efficiency. This is important because VLSI’s math is material to the damages amount that the Court of Appeals has now put into question. Specifically, VLSI’s argument was that every 1% improvement gain in performance (processing speed) resulted in an additional 0.764% in the processor’s price. Damages also involved a calculation rounding out an additional baseline of ‘lost’ research costs.
Intel appealed the ruling in 2021 but when that appeal failed, Intel brought the matter to the Patent Trial and Appeal Board (PTAB). The PTAB ruled that both patents were invalid and essentially released Intel from its compensatory obligation. Then VLSI brought a challenge to that ruling back to the US Court of Appeals, and that is how we got here.
The Federal Circuit Court has now ruled that the evidence that Intel infringed one of the two contested patents, which accounted for $1.5 billion, was insufficient. The Court did however affirm that Intel had infringed the other patent but found that the damages analysis that led to the $675 million portion of the verdict amount was faulty and ordered that a new trial be set to determine a more appropriate amount. Intel’s contention is that the data used by VLSI’s experts to determine damages focused on products and functionality rather than on the infringed IP, and therefore did not reflect whatever hypothetical royalties that Intel might have paid to VLSI under a licensing agreement for the IP.
This is not the first or the last round of legal battles between Intel and VLSI. In 2021, Intel faced off against VLSI in another jury trial in Texas over a $3 billion complaint and initially lost, but saw that verdict overturned. Last year, a separate Texas jury found that VLSI was entitled to roughly $950 million from Intel in yet another patent infringement case. Both companies have agreed to dismiss another case potentially worth more than a billion dollars in a multi-billion-dollar case in Delaware, but yet another trial in Northern California is scheduled to start in 2024.
Patent holding company VLSI is owned by investment funds managed by Fortress Investment Group. Mubadala Investment Company had agreed to acquire a majority share of Fortress from Japan-based Softbank Group earlier this year.
A Broader Effort to Weaken the US Patent System and the Technology and Economic Engines It Supports?
Both the PTAB’s invalidation of the patents in question and the US Appeals Court rulings on the matter are good news for Intel, but I cannot help but think that this type of IP litigation, which generally targets large US chipmakers, is far from over. IP is a complicated legal field, and not all US jurisdictions, let alone juries, are necessarily equipped to fully appreciate how nuances in IP law can be exploited to one party or another’s benefit. Unfortunately, where a case is filed often matters more to a verdict than the merits of the case itself, which is why the involvement of higher courts is so often needed to rectify procedural and ruling errors made in lower courts.
Perhaps anecdotally, or perhaps not, it also seems that leading US chipmakers are being increasingly targeted by opportunistic IP infringement claims by foreign firms, with strategies often attempting to leapfrog right over damages from hypothetical lost licensing revenue (which would be adequate in an IP infringement case) to damages conflating IP and the aggregate value of complete products and systems incorporating the IP in question.
One theory is that some foreign IP holders may be deliberately pursuing a scattershot litigation strategy to create rulings and precedents in US courts, in hope of chipping away at US patent law just enough to open a breach just wide enough to enable a flood of additional IP-themed complaints throughout the system. This would be designed to overwhelm US silicon companies and the courts with endless lawsuits, ultimately weakening US tech, and making the US less competitive on the world stage.
On the one hand, the success of such a project could benefit unscrupulous and litigious IP holders looking for a semi-permanent payday. On the other hand, a weakening of the US tech sector and subsequently of the economics of innovation in the US would give the upper hand to competing technology ecosystems, the largest beneficiary of such a scenario presumably being China.
Whether any IP-themed disputes between VLSI and Intel or Arm and Qualcomm have anything to do with any of this is not for me to say or speculate about. It is, however, important to note that any systematic, continued targeting of US chipmakers such as Intel and Qualcomm with IP-themed litigation plays into a larger geostrategic project, whether or not those individual efforts are deliberately part of it or merely accidentally helpful. That is the lens through which I look at every IP case of this type because no IP case brought against a US silicon company exists in a vacuum anymore or should be treated as such. The stakes are much larger than that.
Luckily, US courts of appeal and institutions such as the PTAB have, so far, done a decent enough job of protecting the integrity of US patent law and precedent. On the positive side of that equation, with every bad ruling overturned, vacated, or kicked back to lower courts for a re-do, case law affirming the nation’s healthy IP and patent system finds itself strengthened. On the less positive side, however, every court case brought against a US chipmaker runs the risk of landing a blow to the system and shaking its foundations loose―if not handled right the first time or corrected on appeal.
We saw how vulnerable even the US Federal Trade Commission (FTC) has been to foreign influence when it brought a case of questionable merit against Qualcomm several years ago to a court surprisingly poorly equipped to handle the matter with appropriate caution, let alone to see the bigger strategy at play behind the complaint. Fortunately, the 9th Circuit rectified the lower court’s errors in a scathing ruling, but it should have been obvious to FTC lawyers that the case should have never been brought in the first place, not only on its dubious merits but because of its fairly obvious geostrategic and national security implications. US rivals continue to actively test US regulatory, legislative, and judicial systems for IP-centric and IP-adjacent vulnerabilities, and we would be wise to become more proactive and organized when it comes to protecting the US patent system against such efforts.
In closing, any IP litigation win for US chipmakers is good news not only for the companies involved (Intel in this case), but also for the US technology ecosystem at large, and for the future of US competitiveness on the global stage. To be continued.
Disclosure: The Futurum Group is a research and advisory firm that engages or has engaged in research, analysis, and advisory services with many technology companies, including those mentioned in this article. The author does not hold any equity positions with any company mentioned in this article.
Analysis and opinions expressed herein are specific to the analyst individually and data and other information that might have been provided for validation, not those of The Futurum Group as a whole.
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Author Information
Research Director Olivier Blanchard covers edge semiconductors and intelligent AI-capable devices for Futurum. In addition to having co-authored several books about digital transformation and AI with Futurum Group CEO Daniel Newman, Blanchard brings considerable experience demystifying new and emerging technologies, advising clients on how best to future-proof their organizations, and helping maximize the positive impacts of technology disruption while mitigating their potentially negative effects. Follow his extended analysis on X and LinkedIn.
