By Thomas Long, J.D.
In a dispute between competitors in the ambient light sensor market, the U.S. Court of Appeals for the Federal Circuit has affirmed a district court’s judgment, following a jury trial, of liability for trade secret misappropriation of technology relating to the photodiode array structure of ambient light sensors for electronic devices. The liability judgment stood, even though two of three asserted bases for trade secret misappropriation were deemed improper by the appellate court. The remaining basis for liability was sufficient to support the jury’s verdict. The appellate court, however, reversed a verdict that the defendant manufacturer infringed three method claims of the plaintiff’s patent because there was no evidence that the accused products used the patented methods, although the court affirmed the verdict of infringement with respect to three apparatus claims because the accused devices were capable of performing the patented function. Although the defendant was liable for misappropriating trade secrets, the damages award—based on disgorgement of all of the defendant’s profits—was vacated because it was based in part on bases for liability that were deemed improper, and because the equitable remedy of disgorgement was a matter that should have been decided by the district court instead of the jury. Patent infringement damages awarded by the jury also were vacated because they were improperly duplicative of the damages award for trade secret misappropriation. Finally, the Federal Circuit vacated the district court’s denial of the plaintiff’s request for an injunction, holding that the district court failed to conduct a sufficient analysis as to irreparable harm (Texas Advanced Optoelectronic Solutions, Inc. v. Renesas Electronics America, Inc., May 1, 2018, Taranto, R.).
Plaintiff Texas Advanced Optoelectronic Solutions, Inc. (TAOS) and defendant Intersil Corporation (later known as Renesas Electronics America, Inc.) each developed and sold ambient light sensors, which were used in electronic devices to adjust screen brightness in response to incident light. In the early 2000s, TAOS and Intersil were both developing ambient light sensors for electronic devices. On June 3, 2004, the parties entered into a "Confidentiality Agreement" to explore the possible acquisition of Intersil by TAOS. Although the parties exchanged confidential information, they were unable to agree on the terms of a business relationship, and discussions regarding the acquisition ended. Shortly thereafter, Intersil released new sensors with the technical design TAOS had disclosed in the confidential negotiations. TAOS then sued Intersil in federal district court for infringement of U.S. Patent No. 6,596,981 ("the ’981 patent") and trade secret misappropriation.
At the conclusion of the trial on March 6, 2015, the jury found that Intersil breached the Confidentiality Agreement, misappropriated TAOS’s trade secrets, and willfully infringed the ’981 patent. The jury awarded TAOS damages, but the district court denied TAOS’s request for an injunction. Both parties appealed.
Trade secret misappropriation. Intersil argued that the jury verdict of liability for trade secret misappropriation had to be reversed. The Federal Circuit disagreed, although it agreed that the verdict could not properly rest on some of the bases TAOS presented to the jury.
At trial, TAOS asserted that Intersil misappropriated three trade secrets: (1) TAOS’s detailed financial information, allegedly used by Intersil in making its decision whether to buy TAOS’s technology or build its own (the "Build vs. Buy" analysis); (2) the TSL2560 "packaging roadmap" specification of glass packaging despite its cost (higher than for plastic), allegedly used by Intersil in deciding to use plastic packaging; and (3) the 1:1 interleaved photodiode array structure, allegedly used by Intersil in modifying its products. TAOS’s theory of liability was that Intersil’s use of those trade secrets constituted a breach of confidence.
With respect to the packaging roadmap and cost-breakdown information, there was no dispute that this information could constitute trade secrets, but TAOS failed to show that Intersil acquired this information by misappropriation from TAOS, the court said. TAOS’s technical expert admitted that Intersil was already using low-cost plastic rather than glass packaging in 2003 and early 2004, long before TAOS revealed its cost-breakdown information to Intersil in June 2004. Documents also showed that Intersil recognized in February 2004 that plastic would provide "low cost packaging" that would "offer a price advantage." Intersil did not misappropriate information that it already had, the court reasoned. Therefore, no substantial evidence supported finding misappropriation based on the asserted glass packaging trade secret.
For the second trade secret, Intersil did not dispute the sufficiency of the evidence regarding misappropriation. Instead, Intersil contended that the photodiode array structure was no longer "secret" in 2004 because the ’981 patent disclosed that structure in 2003. The Federal Circuit disagreed. The asserted trade secret was a structure that included both a 1:1 ratio of shielded to unshielded wells and interleaving of the wells in that ratio—that is, repetition of the 1:1 ratio in an alternating pattern—whereas the patent disclosed, individually, a 1:1 ratio and interleaving of shielded and unshielded wells. A reasonable jury could find that the patent did not disclose a combination of those features, the court said.
For the third trade secret, TAOS’s theory of liability was that Intersil misappropriated TAOS’s detailed financial information by improperly using the information to create a "Build vs. Buy" analysis for itself. This was not a proper basis for liability, the court held, because the Confidentiality Agreement clearly permitted that use. Therefore, use of the information was contractually permitted and could not provide the basis of liability for trade secret misappropriation.
Although Intersil showed that the misappropriation verdict cannot properly rest on two of TAOS’s theories, Intersil had not shown that the liability verdict should be set aside, in the court’s view. The Federal Circuit concluded that the error regarding the Build vs. Buy theory was harmless. Intersil conceded that the trade secret misappropriation verdict was based largely on the asserted secrecy of the diode structure that TAOS patented. The appellate court therefore affirmed the verdict of Intersil’s liability for trade secret misappropriation, limited to Intersil’s use of the photodiode array structure.
Disgorgement award. The Federal Circuit vacated the jury’s monetary award for trade secret misappropriation because of the absence of liability on at least the "Build vs. Buy" trade secret and the fact that the award encompassed damages attributable to sales that occurred long after the 1:1 interleaved photodiode array structure was no longer a trade secret. TAOS’s calculation of monetary relief did not distinguish among the three grounds for liability that were presented to the jury, two of which the court had deemed improper. There was no evidentiary basis to conclude that the remaining ground for liability—the photodiode structure trade secret—supported the entire award. In addition, the unrebutted evidence at trial showed that TAOS’s 1:1 interleaved photodiode array was accessible to Intersil by proper means long before the time of many of the sales included in TAOS’s request for monetary relief. The damages award was based on a disgorgement of all of Intersil’s profits, not just the head-start period Intersil had gained during the time the relevant information was secret. Accordingly, the award was vacated. Finally, the court also vacated the disgorgement award because, as an equitable remedy, disgorgement was to be decided by the district court, not the jury. The requested disgorgement of all of Intersil’s profits was not a "proxy" for actual damages in the form of TAOS’s lost profits or a reasonable royalty; therefore, there was no Seventh Amendment jury trial right with respect to the award.
Patent infringement. Intersil argued that there was insufficient evidence to support the jury’s verdict of direct infringement of dependent claims 16, 17, 18, 43, 45, and 46 of the ’981 patent. TAOS’s theory of infringement at trial was that Intersil’s products infringed the method claims—claims 43, 45, and 46—by operating in "Mode 3." TAOS asserted that, in Mode 3, the products determined "an indication of spectral content of the incident light in response to the first and second photocurrents." In Intersil’s products, the default mode of the chip was noninfringing Mode 1. An off-chip microcontroller is used to activate Mode 3 to collect information from the shielded and exposed diodes, and to perform subtraction to roughly estimate the amount of visible light. There was no evidence presented at trial that any of Intersil’s products in fact operated in Mode 3. Therefore, the court reversed the verdict of infringement of method claims 43, 45, and 46.
However, the court stated that the same reasoning did not apply to apparatus claims 16, 17, and 18. Those claims required only devices that were capable of "determining an indication of spectral content of the incident light in response to the first and second photocurrents." Actual use of Intersil’s products in Mode 3 was not required. According to the Federal Circuit, sufficient evidence supported the jury’s finding that the structure for Mode 3 was present in the accused products. Accordingly, the appellate court affirmed the judgment of infringement of claims 16, 17, and 18.
Patent infringement damages—duplicative award. The Federal Circuit agreed with Intersil’s contention that the district court erred in concluding that the award for patent infringement was not duplicative of the award for trade secret misappropriation. Generally, double recovery for the same injury was inappropriate. In this case, Intersil’s use of TAOS’s photodiode array structure was the basis of Intersil’s liability for both trade secret misappropriation and patent infringement. The award for patent infringement was based on a subset of the sales that formed the basis of the award for trade secret misappropriation. Therefore, the patent award represented an impermissible double recovery.
TAOS’s expert calculated a disgorgement award for trade secret misappropriation in which all profits made from sales of the infringing products (plus all profits made from sales of additional products) would go to TAOS. The expert calculated a reasonable royalty for the patent infringement based on a fraction of the total profits for those infringing products. The jury chose to award the full amount ($48,783,007) of the expert’s proposed disgorgement award for the trade secret misappropriation and a partial amount ($73,653.51) of the expert’s proposed royalty for the patent infringement ($105,219). The royalty award for patent infringement was therefore duplicative of some portion of the disgorgement award for trade secret misappropriation, to the extent the awards covered the same period, the court said. This overlap was improper. The Federal Circuit vacated the award of damages for patent infringement and remanded for further proceedings, making it clear that damages must be limited to infringement of claims 16, 17, and 18.
Extraterritorial sales. TAOS argued that the district court erred in granting summary judgment in favor of Intersil as to extraterritorial sales. The Federal Circuit disagreed. The evidence regarding domestic negotiations and testing of some of Intersil’s products did not demonstrate "substantial activities regarding sales" sufficient to raise a material dispute of fact as to sales or offers to sell in the United States, sufficient to warrant damages under 35 U.S.C. §271(a). The undisputed facts showed manufacture, packaging, and testing abroad, and shipping of the units to locations abroad.
Denial of injunction. In its denial of TAOS’s motion for an injunction to prevent future patent infringement by Intersil, the district court failed to conduct a proper analysis regarding irreparable harm, according to the appellate court. The district court denied an injunction solely because TAOS had requested a reasonable royalty as compensation for past infringement, which, in the district court’s view, showed that a reasonable royalty should be adequate to compensate TAOS for future infringement. However, the Federal Circuit said, while a patent owner’s request for relief in the form of a reasonable royalty may be relevant to those inquiries, it is not conclusive without further analysis. There could be other, hard-to-measure harms present that could only be redressed via injunctive relief. Therefore, the appellate court vacated the denial of an injunction and remanded for further consideration of the request, while expressing no opinion on the outcome.
The case is Nos. 2016-2121, 2016-2208, and 2016-2235.
Attorneys: Jamil Alibhai (Munck Wilson Mandala, LLP) for Texas Advanced Optoelectronic Solutions, Inc. Gregory A. Castanias (Jones Day) for Renesas Electronics America, Inc. f/k/a Intersil Corp.
Companies: Texas Advanced Optoelectronic Solutions, Inc.; Intersil Corp.; Renesas Electronics America, Inc. f/k/a Intersil Corp.
MainStory: TopStory Patent TradeSecrets FedCirNews
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