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Frequently Asked Questions Concerning the Status of the CMU Litigation


Introduction

As disclosed by Marvell Technology Group Ltd. (“Marvell”) in a press release dated December 27, 2012, on December 26, 2012, a jury in Pittsburgh delivered a verdict in a lawsuit brought by Carnegie Mellon University (“CMU”) against Marvell in the United States District Court for the Western District of Pennsylvania (the “Court”). The jury found that the two CMU patents at issue were literally and willfully infringed and not invalid, and awarded damages in the amount of $1.17 billion. As stated in Marvell’s December 27 press release, Marvell believes that the evidence and the law do not support the jury’s findings and the award of damages. As a result, Marvell has sought to overturn the verdict in post-trial motions before the District Court and in view of the Court’s rulings, as discussed herein, plans to appeal to the U.S. Court of Appeals for the Federal Circuit in Washington, D.C.

Marvell's post-trial motions as well as CMU’s post-trial motions were heard on May 1 and 2, 2013. The Court has ruled on both parties’ post-trial motions in the following sequence. On June 26, 2013, the Court denied CMU’s motion for attorney fees without prejudice. On August 23, 2013, the Court denied Marvell’s motion for mistrial. On September 23, 2013, the Court issued an Order: (i) denying Marvell’s motion for judgment as a matter of law, or in the alternative, motion for new trial on non-damages issues, (ii) denying Marvell’s motion for judgment as a matter of law, new trial and/or remittitur with respect to damages, and (iii) and granting in part CMU’s motion for a finding of willful infringement enhanced damages, to the extent the Court found in favor of CMU on the issue of willful infringement. On January 14, 2014, the Court denied Marvell’s motion on laches. On March 31, 2014, the Court rejected CMU’s motion for an injunction which would block Marvell from selling chips that the jury found to be infringing. The Court also rejected CMU’s demand for approximately $326 million in pre-judgment interest, and substantially scaled back CMU’s request for enhanced damages. Based on these decisions, the Court calculated the damages, including enhancement to total approximately $1.54 billion. The Court held that under its decision, CMU is entitled to post judgment interest and an on-going royalty. On May 7, 2014, the Court entered a final judgment from which Marvell filed a notice of appeal on May 14, 2014, concurrently with filing an executed supersedeas bond of $1.54 billion to stay the judgment.

Marvell is providing the following FAQs to provide additional information to Marvell stakeholders and partners regarding the current status of the CMU litigation. Marvell has compiled the following from publicly available sources including the proceedings of the litigation. Marvell believes that additional details regarding Marvell’s position regarding the jury verdict and the litigation may further clarify the status of the CMU litigation.

Non-infringement

What did the Court find regarding infringement?

The Court denied Marvell’s motion for judgment as a matter of law or a new trial as to non-infringement, finding there was adequate evidence upon which a reasonable jury could properly find a verdict in favor of CMU.

Does Marvell intend to appeal the ruling?

Yes, Marvell’s chips address media noise in a fundamentally different way than the claims in the two CMU patents at issue, U.S. Patent Nos. 6,201,839 and 6,438,180. Marvell's Media Noise Processor (“MNP”) and Non-Linear Viterbi Detector ("NLD") features use a simple Viterbi detector, along with either pre- or post-processing.

Marvell's simulation computer programs also do not infringe as they are not detectors that process signal samples, as required by CMU’s patent claims, but rather are merely computer software programs that process data from text files, and they were not incorporated into any Marvell chips.

Does Marvell have its own patents that cover its MNP feature and its NLD feature?

Marvell has sought and been awarded more than 100 patents on its read channel technologies, including U.S. Patent Nos. 6,931,585 and 7,155,660, which are directed to its media noise post-processor. For example, the '585 patent covering Marvell’s MNP post-processor was jointly developed in-house at Marvell by co-inventors Dr. Zining Wu and Mr. Gregory Burd. Their work was based on an earlier Marvell post-processor architecture developed in 1998 and patented by Marvell’s Dr. Andrei Vityaev. In addition, Marvell was awarded a patent on its NLD feature, U.S. Patent No. 8,160,181. The ‘181 patent was invented by Dr. Wu, Hongxin Song, Seo-How Low, and Panu Chaichanavong.

Invalidity

What did the Court find regarding invalidity?

The Court denied Marvell's motion for judgment as a matter of law or in the alternative for a new trial as to invalidity, finding that CMU had presented enough evidence upon which a reasonable jury could properly find that the asserted claims were not anticipated or obvious.

Does Marvell intend to appeal the rulings?

Yes, Marvell respectfully maintains that CMU’s patents are anticipated by the prior work done by Seagate, including the work reflected in U.S. Patent No. 6,282,251. This prior art patent was invented by Mr. Glen Worstell, a Seagate engineer and was filed before the CMU inventors, Drs. Kavcic and Moura, even conceived of their alleged invention.

What's more, Mr. Worstell informed CMU that he himself had done work on a “Viterbi detector modification to account for noise correlation.” But CMU never informed the U.S. Patent Office about this communication from Seagate or about the work at Seagate. As a result, the U.S. Patent Office did not consider the work of Seagate in its examination of the CMU patent applications. Indeed, throughout the prosecution of both patents, CMU never cited a single prior art patent reference to the U.S. Patent Office, other than cross-referencing in the ‘180 patent the prior art patents already cited by the U.S. Patent Office in the '839 patent..

If the Seagate patent invalidates the CMU patent claims, why did the Seagate inventor say in an email that the CMU invention goes beyond his work and is probably more interesting?

The Seagate inventor reviewed an early invention disclosure of the CMU patent. The disclosure did not include any patent claims, and only included equations using covariance matrices. The Court granted Marvell’s motion for summary judgment of non-infringement of several CMU patent claims that require the use of covariance matrices as Marvell's chips do not use such matrices. Even if the use of covariance matrices went beyond the Seagate patent or was probably more interesting, it has no bearing on the claims CMU was asserting at trial, which do not require the use of covariance matrices.

Damages

What did the Court find regarding damages?

On March 31, 2014, the Court ruled that CMU is entitled to a jury verdict of $1.17B, and supplemental damages for sales between July 29, 2012 and January 14, 2013 in the amount of $79.55M, resulting in an amount of $1.25B. The Court rejected CMU’s demand for approximately $326M in pre-judgment interest, and substantially scaled back CMU’s request for enhanced damages to a factor of 1.23, resulting in total damages in the amount of $1.54B. The Court held under its decisions that CMU is entitled to post-judgment interest at 0.14% and an ongoing royalty calculated at $0.50 per infringing chip.

Does Marvell intend to appeal the rulings?

Yes, Marvell respectfully maintains that the damages award is wrong as a matter of law, does not rest on a legally sufficient evidentiary basis, and is against the weight of the evidence.

First, the sale of chips that are never used in the United States accounted for nearly 80 percent (or over $935 million) of the $1.17B jury verdict. U.S. patent laws, like the laws of other countries, are geographically limited in scope. The vast majority of Marvell’s chips are sold overseas, and most of these chips never enter the United States. Based on legal precedent, we believe the law does not allow for damages against products which are exclusively made, used, and sold overseas, and which never enter the U.S.

Second, Marvell does not believe that CMU has adduced sufficient evidence in support of a running royalty of $0.50 per chip sold by Marvell. Marvell believes that the real-world licenses, offers, and projections involving the patents-in-suit do not support the form and amount of a reasonable royalty payment in this case. For example, CMU previously offered licenses to the patents in suit for as little as a one-time flat fee of $200,000. Once this evidence is properly considered, Marvell believes it proves that even if any royalties are due to CMU (under the assumption Marvell used CMU technology) these royalties should be for far less than the amount reflected in this award.

CMU's damages expert lacked the technical and industry expertise to reliably conduct the analysis used to arrive at the 50-cent number. For instance, the 50-cent royalty per chip that the jury adopted was derived from information relating to only one historical data point, which was for the sale of a small quantity of sample chips sold to one of Marvell’s smallest customers. Indeed, a royalty rate of $0.50 per chip yields a royalty that, as a percentage of the average sales price of a chip, far exceeds (perhaps by an order of magnitude or more) typical industry rates for much more significant technologies.

Third, the award fails to account for the fact that more than 80 additional features were included in Marvell’s chips when the MNP feature was added. This failure to properly apportion damages between the allegedly infringing feature and other noninfringing features runs afoul of the law, including the recent decision by the Federal Circuit in Uniloc USA, Inc. v. Microsoft Corp., 632 F.3d 1292, 1318 (Fed. Cir. 2011).

Willfulness

What did the Court find regarding willfulness?

The Court found that CMU showed by clear and convincing evidence that Marvell acted in disregard of an objectively high likelihood that its actions constituted infringement of a valid patent, and that CMU presented sufficient evidence on which a jury could have found that Marvell knew or should have known about the substantial risk of infringement.

Does Marvell intend to appeal the ruling?

Yes, Marvell respectfully maintains that its numerous defenses require a finding that Marvell did not act in disregard of an objectively high likelihood that its actions constituted infringement of a valid patent.

First, Marvell demonstrated a strong invalidity case. In fact, the Court characterized Marvell’s motion for summary judgment of invalidity as a "close call."

Second, Marvell pursued patents on its own technology and freely and voluntarily disclosed the CMU patents to the U.S. Patent Office while pursuing its own patents.

Third, the fact that CMU did nothing for six years after its solicitation letters to the industry failed to yield a single license suggests CMU’s technology was not commercially feasible – not willfully infringed. Moreover, at no time prior to filing its lawsuit in March 2009 did CMU communicate that it believed Marvell was infringing on its patents.

Finally, CMU's inventor, Dr. Kavcic even described Marvell's patented MNP technology as "novel" in an article that he co-authored. Kavcic, Aleksandar, and Ara Patapoutian. "The read channel." Proceedings of the IEEE 96, no. 11 (2008): 1761-1774.  

Regarding the subjective prong, Marvell believes that CMU did not present sufficient evidence to support the jury’s finding that Marvell knew or should have known about the substantial risk of infringement. For example, at trial, Marvell’s inventors explained that they did not copy CMU’s patents and detailed how they came up with their own independent solutions. In fact, Marvell believes that CMU failed to produce evidence that Marvell copied any part of the asserted patent claims.

CMU’s Motion for Injunction 

On March 31, 2014, the Court denied CMU's motion for permanent injunction. Marvell believes this is the right result because money damages are adequate to compensate CMU for any alleged harm, and CMU does not make any products that compete with Marvell’s products and is not suffering any "irreparable harm," which is a prerequisite for an injunction.

Next Steps/Appeal

What are the immediate next steps in the case?

On May 14, 2014, Marvell filed a notice of appeal in order to file an appeal to the Federal Circuit Court of Appeals. The Federal Circuit is a specialized appellate court that has jurisdiction over all appeals in patent cases. The timing of an ultimate ruling from the Federal Circuit may vary depending on such factors as the status of the appellate court’s docket and the time sensitivity of the issues that are being appealed, and we currently anticipate that the appeal could take between one and two years.

What are the grounds for appeal?

Marvell believes it has strong grounds for appeal. For example, under the correct claim construction, the asserted CMU patent claims are invalid and not infringed; and even if infringement were found, any damages should have been commensurate with the nominal license fees that CMU previously obtained from others, and further, damages should be limited to allegedly infringing use of Marvell chips in the United States.

Is Marvell required to pay the $1.54B damages award while the appeal is pending?

Pursuant to federal rules and as part of the normal appeal process, Marvell has filed an executed supersedeas bond of $1.54 billion to stay the judgment while the case proceeds through the appeal. A court-appointed Special Master is overseeing any remaining disputes regarding any security requirement for the separate ongoing royalty issue.

How will the damages award impact Marvell’s business operations and accounting practices?

Marvell does not anticipate a disruption to its normal business operations as a result of the damages award, which Marvell will appeal to the Federal Circuit. Marvell is committed to remain a global leader in providing complete silicon solutions and continue its engagement with its customers.

Marvell has not accrued any liability in its previously issued financial statements for this lawsuit, nor do we expect to record a liability on our financial statements given current circumstances. We continue to believe that a material loss is not probable based on our assessment of the likelihood of a successful appeal. However, we will continue to evaluate the circumstances.

Patent Office

Are the CMU patent claims subject to any patent office proceedings?

Both of the two asserted patent claims are subject to ex-parte reexamination at the U.S. Patent and Trademark Office ("USPTO"). Earlier this year, the USPTO in instituting the reexaminations (control numbers 90/013,124 and 90/013,125) found that substantial new questions of patentability exist as to the asserted claims. The reexamination proceeding materials are publicly available at the USPTO Public Pair website. The website indicates that CMU did not file any patent owner statement in response to the institution of the reexaminations.

Forward-Looking Statements

These FAQs contain forward-looking statements that involve risks and uncertainties, including statements regarding the complex nature of the patents at issue in the CMU litigation; Marvell’s non-infringement position; Marvell’s own patents; the CMU patents at issue as to invalidity and infringement; reasonableness of the assessed damages; findings of the CMU damages expert; CMU’s failure to meet the burden concerning the willfulness analysis and the jury’s finding Marvell willfully infringed; statements about the nature and grounds for an appeal by Marvell; and statements about post-trial actions including motions and appeals processes. The forward-looking statements contained herein are subject to risks and uncertainties, which may cause the actual outcomes or results to vary from those indicated by the forward-looking statements. These risks and uncertainties include any adverse outcomes of any motions or appeals against Marvell that might result in enforcement of the existing judgment unchanged, any disruption to Marvell's ability to continue its normal business operations and other risks and uncertainties, including those more fully described in Marvell’s latest Annual Report on Form 10-K for the year ended February 1, 2014, and other factors detailed from time to time in Marvell’s filings with the SEC. Facts and circumstances referenced and asserted by Marvell are subject to change and Marvell undertakes no obligation to revise or update any of this information in respect of future events.