On appeal from a jury verdict awarding damages for trade secret misappropriation and patent infringement and finding liability for breach of contract and tortious interference, the US Court of Appeals for the Federal Circuit affirmed-in-part liability for trade secret misappropriation, affirmed-in-part liability for patent infringement, and vacated the damages award as including sales not subject to misappropriation claims and as including duplicative awards. Texas Adv. Optoelec. Sol'ns, Inc. v. Renesas Elecs. Am., Inc., Case Nos. 16-2121; -2208; -2235 (Fed Cir., May 1, 2018) (Taranto, J).
Texas Advanced Optoelectronic Solutions (TAOS) and Renesas Electronics America (f/k/a Intersil) compete in the market for ambient light sensors. TAOS conceived and patented an improved sensor, and made further improvements in a second-generation product relying on the patented technology. Intersil sought a license to the first-generation technology. TAOS refused to grant a license, but was willing to consider a merger. TAOS and Intersil executed a confidentiality agreement to allow both parties to evaluate the possible merger. TAOS then disclosed (1) its second-generation technology, (2) a plan to use more expensive glass, rather than cheaper plastic packaging, and (3) financial information, including information about product components. Intersil used the financial information to create a "build versus buy analysis" to evaluate the merger. Negotiations ultimately fell through. Intersil later released sensors incorporating TAOS's second-generation technology and won several contracts to provide the sensors for various products. Intersil subsequently reverse-engineered TAOS's second-generation product.
TAOS sued Intersil for patent infringement and, under Texas law, for trade secret misappropriation, breach of contract and tortious interference. The jury found liability on all claims and awarded a reasonable royalty for patent infringement, disgorgement of all profits plus exemplary damages for trade secret misappropriation, and additional damages for the remaining claims. The district court denied TAOS's post-trial motions for an injunction and enhanced damages for willful infringement and Intersil's motions for a new trial and judgment as a matter of law, except with respect to no willful infringement. Both parties appealed.
The Federal Circuit affirmed liability for trade secret misappropriation with respect to TAOS's second-generation technology. Intersil argued that the technology was disclosed in TAOS's patent (and therefore public), but the Court found that although elements of the technology were disclosed in the patent, the particular combination of elements that constituted the second-generation technology was not. The Court found, however, that Intersil could not be liable for misappropriation of TAOS's financial information in making its build versus buy analysis, reasoning that the confidentiality agreement permitted such a business analysis. Moreover, the Court found that Intersil had not misappropriated packaging information, because Intersil's lower-cost plastic packaging was developed before the companies shared confidential information. The Court vacated the damages award because it included sales post-dating the reverse engineering (i.e., when the technology was no longer a trade secret) and because it was improper for the jury to award disgorgement, which is an equitable remedy.
Regarding patent infringement, the Federal Circuit reversed liability with respect to method claims because of a failure of evidence that Intersil's products actually functioned in the accused mode, which was not the default. However, the Court affirmed liability with respect to apparatus claims, which only required that devices be capable of performing in the accused mode. The Court vacated the damages award for infringement as duplicative of the misappropriation award and noted that an award on remand should be limited to the apparatus claims.
The Federal Circuit further explained that the change in law from Seagate to Halo (IP Update, Vol. 19, No. 6 ) necessitated a new evaluation of willfulness. The Court also vacated the denial of an injunction as lacking sufficient basis because the trial court's irreparable harm analysis (finding none) was limited to the fact that TAOS had sought a reasonable royalty.
Practice Note: The Federal Circuit's rigorous evaluation of the trial court's injunction analysis may indicate a comeback for equitable remedies in patent cases.
Damages Do-Over Ordered In Light Sensor Row
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