By Jonathan Stempel
(Reuters) - A U.S. federal 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 additional royalties.
Writing for the appeals court, Circuit Judge Richard Taranto also said the trial judge was wrong to order Marvell to pay "enhanced damages" for willful infringement plus interest, which boosted the $1.17 billion jury verdict in 2012 to $1.54 billion.
Taranto said U.S. District Judge Nora Barry Fischer in Pittsburgh, which is Carnegie Mellon's hometown, erred in awarding enhanced damages because Marvell had an "objectively reasonable" defense to the school's infringement claims.
Marvell reported $408.8 million of operating income for the fiscal year ended on Jan. 31.
Broadcom Corp, Google Inc, Microsoft Corp 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 27 cents, or 2.2 percent, at $12.21 in early afternoon Nasdaq trading, after having earlier risen to $13.18.
In a statement, Marvell said it was pleased that damages were reduced and that it was evaluating its legal options.
Carnegie Mellon and its lawyer had no immediate comment.
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 school 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.
(Reporting by Jonathan Stempel in New York; Additional reporting by Andrew Chung; Editing by Meredith Mazzilli)