By Joseph Arshawsky, J.D.
Substantial evidence supported a jury’s finding that Raytheon Company failed to show that infrared imaging equipment manufacturers Indigo Systems and FLIR Systems Incorporated (collectively, "Indigo") misappropriated trade secrets relating to sequential vacuum baking procedure and in situ solder sealing package assemblies, the U.S. Court of Appeals for the Federal Circuit has ruled, because a reasonable jury could have found that Indigo employees independently developed the trade secrets rather than misappropriated them by improper means in violation of the the California Uniform Trade Secret Act. The court also affirmed the lower court’s denial of attorney fees to Indigo under the Texas Theft Liability Act, because dismissal of the claims in favor of proceeding under California law was without prejudice and was not to avoid an adverse judicial ruling (Raytheon Co. v. Indigo Systems Corp., July 12, 2018, Chen, R.).
Raytheon is an industry leader in infrared technology and produces infrared imaging equipment. Indigo is a wholly-owned subsidiary of FLIR that also specializes in infrared imaging equipment. Indigo was founded in 1996 by four individuals, including three former Raytheon employees. In 2000, Indigo obtained an investment by Northrup Grumman to enter the infrared imaging market. By late 2000, Indigo was manufacturing and selling its own infrared cameras. This case was filed in Texas district court for patent infringement and trade secret misappropriation. The patent claims were settled and dismissed with prejudice. Trial began in 2014, and the jury ruled in Indigo’s favor on all 31 alleged trade secrets. On appeal, the Federal Circuit affirmed the judgment of no liability in favor of Indigo, but also affirmed the denial of Indigo’s attorney fees.
Federal Circuit jurisdiction. As a threshold matter, where a patent claim is joined with a state law claim in the complaint, the Federal Circuit has jurisdiction over the entire appeal of the final judgment even where, as here, the patent claims have been dismissed with prejudice.
Trade Secret 14 misappropriation claim. As an initial matter, the parties disputed on appeal the scope of Trade Secret 14 as it was presented to the jury. Raytheon asserted that Trade Secret 14 was "its method and use of a sequential vacuum bake during the manufacturing process," consisting of "a sequence of cascading bakes, including a piece part bake, a subassembly bake, and then a final bake." Indigo presented published articles disclosing sequential vacuum baking to enhance vacuum life to show that the broad concept of sequential vacuum baking had been well known and widely used. "The record does not reflect a clear definition of Trade Secret 14, but the undisputed evidence demonstrates that the trade secret is considerably narrower than Raytheon’s proffered concept of a sequential vacuum bake. Such an asserted trade secret would cover information clearly in the public domain; Raytheon bore the burden of defining its trade secret with specificity," the Federal Circuit said. After having presented the jury with narrower definitions of its Trade Secret 14, i.e., by referring to Raytheon’s specific sequential bake recipes, Raytheon could not now try to broaden these definitions on appeal, particularly in view of the evidence that using a sequence of vacuum bakes was a previously-known concept.
The Federal Circuit then held that the jury reasonably found that Indigo did not misappropriate Trade Secret 14. The alleged former Raytheon employee who was responsible for transferring this trade secret expressly denied taking Raytheon’s specific recipes. Evidence also showed that Indigo employees independently developed Indigo’s particularized sequential vacuum baking recipes without using Raytheon’s and indeed there were significant differences between the two recipes. The employee at issue developed Raytheon recipes through public domain materials,consultation with vendors, and experimentation, or he later developed Indigo’s recipes using similar, non-proprietary methods. "For these reasons, the jury reasonably found that Indigodid not misappropriate Trade Secret 14, and the district court did not err in denying Raytheon’s motion for judgment as a matter of law regarding this claim."
Trade Secret 30 misappropriation claim. On appeal, Raytheon claimed that Trade Secret 30 was directed to its in situ solder seal package assembly process, consisting of "the use of a batch process to allow for the manufacture of multiple bolometer packages simultaneously in a vacuum chamber." Indigo responded that Trade Secret 30 was more specific and detailed. "According to Indigo, the claimed trade secret refers to Raytheon’s own process of solder sealing batches of uncooled ceramic packages and consists of the time and temperature of each step in that process, as well as the choice of metals and choice of solders used for sealing the package." Viewed collectively, Raytheon’s own evidence indicates that Trade Secret 30 was not just the manufacture of multiple bolometers simultaneously in a vacuum chamber; it also included the time and temperature of each step of that manufacturing process, as well as choice of metals and solders. Indigo’s witnesses, however, explained that Indigo independently developed its in situ process. Further, despite basing its misappropriation theory for Trade Secret 30 around a particular former Raytheon employee, Raytheon never called him as a witness; and, no witness testified that the former employee shared Raytheon’s Trade Secret 30 with anyone at Indigo. "Because Raytheon did not present any direct evidence that Indigo ever acquired Trade Secret 30 and because Indigo presented substantial evidence that it independently developed its in situ process, we agree with the district court that the jury reasonably concluded that Indigo did not acquire, use, or disclose Trade Secret 30."
Raytheon’s motion for a new trial. Based on the above, and the Federal Circuit’s careful review of the record, the court saw no basis to set aside the verdict and order a new trial.
Attorney fees. Indigo sought fees under the Texas Theft Liability Act ("TTLA"), TEX. CIV. PRAC. & REM. CODE § 134.001–005. The court held that when Raytheon dismissed its Texas trade secret claim to proceed to trial on its California law claims, it was not a dismissal without prejudice in order to avoid an adverse judicial ruling. The Federal Circuit therefore affirmed that Indigo was not the "prevailing party" on the Texas trade secret claims.
This case is Nos. 16-1945 and 16-2050.
Attorneys: Michael Ross Cunningham (Cunningham Swaim, LLP) for Raytheon Co. Joseph R. Palmore (Morrison & Foerster LLP) for Indigo Systems Corp. and FLIR Systems Inc.
Companies: Raytheon Co.; Indigo Systems Corp.; FLIR Systems Inc.
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