Ninth Circuit affirms $35 million judgment against semiconductor manufacturer

Case is rare appellate decision under Semiconductor Chip Protection Act of 1984

Altera Corporation filed suit in the U.S. District Court for the Northern District of California against Clear Logic, Inc., a competitor in the semiconductor industry. Altera alleged that Clear Logic had violated the Semiconductor Chip Protection Act of 1984, 17 U.S.C. §901 et seq. (“SCPA”), by using the bitstream generated when programming Altera programmable logic devices to create application-specific integrated circuits. A jury found in favor of Altera, and awarded more than $30 million in damages, plus an additional $5 million in interest and costs.

Clear Logic appealed to the Ninth Circuit, arguing that the trial court improperly instructed the jury regarding the affirmative defense of legitimate reverse engineering, which is provided for under the SCPA. The court affirmed, however, holding that certain misstatements of the law in the jury instructions were harmless error.

The trial court’s instructions initially defined “legitimate reverse engineering” to allow copying and analyzing only “non-protectible concepts or techniques” embodied in a mask work. This was an incorrect statement of the law, but the court concluded that further instructions adequately provided correction. The later instructions explained that “it is permissible [under the SCPA] to reproduce ‘a registered mask work’ as a step in the process of creating an original chip, so long as the purpose of reproducing the chip is appropriate.”

Accordingly, the court held that the jury was able to properly conclude that the Clear Logic mask works incorporated into the application-specific integrated circuits were not original, but were copies prohibited under the SCPA.

Altera Corporation v. Clear Logic, Inc., — F.3d —, 2005 WL 2233252 (9th Cir., September 15, 2005).