Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-5_00-cv-20905/USCOURTS-cand-5_00-cv-20905-7/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1331 Fed. Question: Breach of Contract

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United States District Court

For the Northern District of California

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1 Hynix refers to this rate as the five-year Treasury bill but the term used by the Federal

Reserve is the "five-year constant maturity Treasury yield."

ORDER REGARDING PREJUDGMENT INTEREST—C-00-20905 RMW

SPT

United States District Court

For the Northern District of California

E-filed: 8/30/06 

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

HYNIX SEMICONDUCTOR INC., HYNIX

SEMICONDUCTOR AMERICA INC.,

HYNIX SEMICONDUCTOR U.K. LTD., and

HYNIX SEMICONDUCTOR

DEUTSCHLAND GmbH,

Plaintiffs,

v.

RAMBUS INC.,

Defendant.

No. CV-00-20905 RMW

ORDER REGARDING PREJUDGMENT

INTEREST

[Re Docket No. 2059]

Rambus seeks a determination of the amount of prejudgment interest to which it is entitled. 

The parties do not dispute that prejudgment interest may be awarded for the period of infringement

prior to judgment. The parties, however, disagree on the rate to be used and propose three

alternative methods of determining the interest rate. Rambus proposes using its weighted average

cost of capital ("WACC") or, in the alternative, the interest rate it charges its licensees for late or

default royalty payments. Hynix proposes to use an interest rate equal to the five-year constant

maturity Treasury yield.1

 The parties also dispute whether prejudgment interest should be awarded

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ORDER REGARDING PREJUDGMENT INTEREST—C-00-20905 RMW

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for the period during which the present suit was stayed pending Rambus's appeal in its suit against

Infineon Technologies AG and for the time during which additional proceedings related to Rambus's

late discovery of back-up tapes took place. The court has considered the parties' submissions and

arguments and hereby awards prejudgment interest at a rate equal to the five-year constant maturity

Treasury yield (as published by the Federal Reserve), calculated yearly beginning June 23, 2000 and

compounded quarterly. Interest is to run uninterrupted from June 23, 2000. 

I. ANALYSIS

A. Prejudgment Interest Rate

35 U.S.C. § 284 provides that damages for infringement should be awarded "together with

interest and costs as fixed by the court." See also Gen. Motors Corp. v. Devex Corp., 461 U.S. 648,

655 (1983). Prejudgment interest is meant to be compensatory and not punitive. Oiness v.

Walgreens Co., 88 F.3d 1025, 1003 (Fed. Cir. 1996). The purpose of prejudgment interest is to put

the patent owner "in as good a position as he would have been in had the infringer entered into a

reasonable royalty agreement." Gen. Motors, 461 U.S. at 655. To do so, prejudgment interest seeks

to compensate the patentee for the forgone use of the money between the time of infringement and

the date of the judgment. Id. The rate of prejudgment interest is "left largely to the discretion of the

district court." Bio-Rad Labs., Inc. v. Nicolet Instrument Corp., 807 F.2d 964, 969 (Fed. Cir. 1986). 

In Uniroyal, Inc. v. Rudkin-Wiley Corp., 939 F.2d 1540, 1545 (Fed. Cir. 1991), the Federal Circuit

upheld the district court's selection of the prime rate, noting that "[i]n any event, it is not necessary

that a patentee demonstrate that it borrowed at the prime rate in order to be entitled to prejudgment

interest at that rate" because the court "is afforded wide latitude in the selection of interest rates." 

There, the district court selected the prime rate in part because the patentee's "poor financial

condition during the pendency of the litigation required it to finance its operations with monies

borrowed at rates above the prime rate." Id.

After considering each of the proposed alternative measures of the appropriate interest rate,

the court finds that a rate equal to the five-year constant maturity Treasury yield provides the least

speculative measure of compensating Rambus with a safe return on its forgone use of the royalty

payments. First, Rambus's WACC measure is too speculative. WACC represents Rambus's costs of

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2 Teece's calculation of WACC yielded quarterly rates ranging from 7.43% to 19.27% (and

4.33% for the stub period of June 23 to June 30, 2000). David J. Teece Decl. Supp. Rambus's Post-Trial

Br. Concerning Prejudgment Interest ("Teece Decl."), Ex. E.

3 Applying a one-year T-bill + 5% approach would yield a range from 6.09% to 11.08%

for the infringement period. Teece Decl., Ex. F.

4 The five-year constant maturity Treasury yield for the infringement period ranges from

2.63% to 6.18%. Weinstein Decl., Ex. 4 at 1 (listing the rates as of the last day of each quarter).

ORDER REGARDING PREJUDGMENT INTEREST—C-00-20905 RMW

SPT 3

securing financing through issuance of debt and equity.2 Although each time Hynix failed to pay

Rambus royalties, Rambus theoretically could have gone to the capital markets and obtained the

same amount of money, there is no evidence that Rambus needed to seek or actually did seek funds

from the capital markets during the infringement period. It appears that Rambus held excess cash

and investments in marketable securities throughout the infringement period sufficient to finance its

operations without going to the capital markets for funding. See Roy Weinstein Decl. Concerning

Prejudgment Interest ("Weinstein Decl."), Ex. 3 (citing source as Rambus's Forms 10-K and 10-Q). 

Rambus offers no evidence that a WACC rate is appropriate on the basis that it did or would have

undertaken the investment risks (i.e. of borrowing through debt or equity financing) that might

justify use of the WACC rate. Therefore, using WACC to measure Rambus's lost return on the use

of the royalties owed by Hynix would be speculative. Second, the interest that may be charged to

licensees for untimely payment or nonpayment necessarily includes a punitive aspect to deter late

payment or nonpayment and, thus, does not represent a measure of "compensating" the patentee for

lost use of money.3

 Although the five-year constant maturity Treasury yield results in a lower total

interest than the interest rate for late payments in Rambus's license agreements (and perhaps might

create an incentive to infringe and litigate), this does not justify awarding prejudgment interest

above that which compensates for the forgone use of the money. As noted above, an award of

prejudgment interest is meant to be compensatory not punitive.

In comparison, the five-year constant maturity Treasury yield reflects the least speculative

proposed measure to compensate Rambus for its forgone use of the royalty payments without

punishing Hynix.4

 A risk-free rate is appropriate because it would compensate Rambus for the time

value of money while recognizing that during the time it was deprived of the royalties it was also

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5 In particular, Rambus has made no showing that during the infringement period, it had

borrowed money at a higher rate or that there was otherwise any causal connection between any

borrowing and the loss of the use of the money awarded as a result of Hynix's infringement. 

6 This interest rate also exceeds the post-judgment interest rate called for under 28 U.S.C.

§ 1961. 

ORDER REGARDING PREJUDGMENT INTEREST—C-00-20905 RMW

SPT 4

relieved of the risk associated with investment of that money. According to Weinstein's declaration,

throughout the infringement period Rambus invested its excess cash in government securities and

high-grade corporate notes and bonds that yield returns slightly less than the proposed five-year

constant maturity Treasury yield.5 See Weinstein Decl., Ex. 3. The Federal Circuit has upheld

district court awards of prejudgment interest in patent infringement cases at T-bill rates. See, e.g.,

Laitram Corp. v. NEC Corp., 115 F.3d 947, 955 (Fed. Cir. 1997) (upholding award of prejudgment

interest at the T-bill rate where "there was no evidence that [the patentee] borrowed money at a

higher rate, what that rate was, or that there was a causal connection between any borrowing and the

loss of the use of the money awarded"); Datascope Corp. v. SMEC, Inc., 879 F.2d 820, 829 (Fed.

Cir. 1989) (upholding award of prejudgment interest Treasury yield rather than prime rate). Thus,

the five-year constant maturity Treasury yield provides a fair measure of Rambus's forgone use of

the royalty payments it would have received in the normal course of a license agreement with

Hynix.6 

B. Time Period for Prejudgment Interest

1. Withholding of prejudgment interest

Section 284 of Title 35 leaves the court with some discretion in awarding prejudgment

interest. Gen. Motors, 461 U.S. at 656-57. It may be appropriate in certain circumstances for the

district court, in its discretion, to limit, withhold, or deny prejudgment interest "where the patent

owner has been responsible for undue delay in prosecuting the lawsuit." Id. However, "withholding

of prejudgment interest based on delay is the exception, not the rule." Lummus Indus., Inc. v. D.M.

& E. Corp., 862 F.2d 267, 275 (Fed. Cir. 1988). Absent prejudice to the other party, delay by the

patentee does not warrant denial of prejudgment interest. Id.; see also Allen Archery, Inc. v.

Browning Mfg. Co., 898 F.2d 787, 792 (Fed. Cir. 1990) (finding that the district court abused its

discretion in denying prejudgment interest during a stay pending a separate action for the same

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ORDER REGARDING PREJUDGMENT INTEREST—C-00-20905 RMW

SPT 5

patent because the stay furthered the possible and actual conservation of judicial and attorney

resources and was not otherwise "undue nor unjustified"); see also Nickson Indus., Inc. v. Rol Mfg.

Co., 847 F.2d 795, 800 (Fed. Cir. 1988) ("There must be justification bearing a relationship to the

award."). Nevertheless, it is within the discretion of the district court to determine whether the

circumstances warrant limiting or denying the award of prejudgment interest. See, e.g., Uniroyal,

Inc. v. Rudkin-Wiley Corp., 939 F.2d 1540, 1546 (Fed. Cir. 1991) (court's decision to withhold

prejudgment interest during the stay pending one party's appeal of a separate action regarding the

same patent was not abuse of discretion because the decision "is fully in keeping with" General

Motors).

The court finds no basis for withholding prejudgment interest. The stay pending Rambus's

appeal of its suit against Infineon had the potential of conserving judicial resources given the

overlapping issues of law. The continuance of trial dates was to permit Hynix the time it requested

to complete additional discovery and hold additional proceedings related to the back-up tapes. An

award of prejudgment interest seeks to compensate the patentee for loss use of funds; thus, the fact

that some delay should be attributed to Rambus does not itself justify withholding prejudgment

interest while Hynix had use of such funds. There is no showing that the delays prejudiced Hynix or

that the delays were undue. See Lummus, 862 F.2d at 275 (noting that absent any showing of

prejudice, delay by patent holder in filing the action is insufficient grounds for limiting prejudgment

interest); Gen. Motors, 461 U.S. at 657 (upholding decision to award costs because although the

litigation spanned a number of years, the party's efforts were to fully litigate its claims and not to

cause unnecessary delay).

2. Period after December 31, 2005

Finally, the parties also dispute how interest should be computed for the period between

January 1, 2006 and any final judgment. Hynix contends that the present round of briefings is not

the proper forum to address this matter while Rambus has extrapolated the jury's award of damages

and contends that prejudgment interest should be computed through the date of final judgment. 

Because this issue has not been fully briefed by the parties, the court declines to address it at this

time, although the court at this point does not see a reason that the prejudgment interest should be

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ORDER REGARDING PREJUDGMENT INTEREST—C-00-20905 RMW

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calculated differently after December 31, 2005.

III. ORDER

For the foregoing reasons, the court:

1. Sets the prejudgment interest rate based on the five-year constant maturity Treasury

yield for the period June 23, 2000 through December 31, 2005 beginning with the

rate in effect on June 23, 2000 and adjusted annually thereafter; 

2. Requires quarterly compounding of prejudgment interest; and

3. Denies Hynix's request to withhold prejudgment interest for any part of the

infringement period.

DATED: 8/30/06 

RONALD M. WHYTE

United States District Judge

Case 5:00-cv-20905-RMW Document 2402 Filed 08/30/06 Page 6 of 7
United States District Court

For the Northern District of California

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ORDER REGARDING PREJUDGMENT INTEREST—C-00-20905 RMW

SPT 7

THIS SHALL CERTIFY THAT A COPY OF THIS ORDER WAS PROVIDED TO:

Counsel for plaintiffs:

Daniel J. Furniss

Theodore G. Brown, III

Jordan Trent Jones

Townsend & Townsend & Crew LLP

379 Lytton Ave

Palo Alto, CA 94301

Patrick Lynch

Kenneth R. O'Rourke

O'Melveny & Myers

400 So Hope St Ste 1060

Los Angeles, CA 90071-2899

Kenneth L. Nissly

Susan van Keulen

Geoffrey H. Yost

Thelen Reid & Priest LLP

225 West Santa Clara Street, 12th Floor

San Jose, CA 95113-1723

Counsel for defendant:

Gregory Stone

Kelly M. Klaus

Catherine Augustson

Munger Tolles & Olson

355 So Grand Ave., Ste 3500

Los Angeles, CA 90071-1560

Peter A. Detre

Carolyn Hoecker Luedtke

Munger Tolles & Olson

560 Mission Street, 27th Floor

San Francisco, CA 94105-2907

Peter I. Ostroff

Rollin A. Ransom 

Michelle B. Goodman

V. Bryan Medlock, Jr.

Sidley Austin Brown & Wood

555 West Fifth Street, Suite 4000

Los Angeles, CA 90013-1010

Jeannine Yoo Sano

Pierre J. Hubert

Dewey Ballantine

1950 University Avenue, Suite 500

East Palo Alto, CA 94303

Dated: 8/30/06 SPT Chambers of Judge Whyte

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