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Texas Advanced Optoelectronic Solutions, Inc. v. Renesas Electronics America, Inc.

Disgorgement of Profits for Trade Secret Misappropriation Awardable by Court, Not Jury

Texas Advanced Optoelectronic Solutions, Inc. v. Renesas Electronics America, Inc., __ F.3d __, 2018 WL 2011463 (Fed. Cir. May 1, 2018) (Dyk, Bryson, TARANTO) (E.D. Tex.: Schell) (3 of 5 stars)

Fed Cir part affirms, part reverses, part vacates judgment of liability after jury trial. The case involves TAOS’s suit for patent infringement, trade secret misappropriation, breach of contract, and tortious interference with business relations. TAOS alleged that Intersil (which Renesas acquired early last year) had improperly used confidential information disclosed to it during negotiations concerning a possible merger. The jury returned a verdict for TAOS on all claims.

Trade secret misappropriation: The district court correctly denied Intersil’s motion for JMOL of no liability for trade secret misappropriation, although two of the three liability theories that TAOS submitted to the jury were improper. The record lacked substantial evidence to support the first theory (concerning alleged misappropriation of TAOS’s “packaging roadmap”), as Intersil’s packaging was the product of “independently possessed information.” Op. at 11. The record contained sufficient evidence to support liability on the second theory (concerning alleged misappropriation of a photodiode array structure), and a reasonable jury could have rejected Intersil’s theory that the structure in question was disclosed in TAOS’s patent, and so was non-secret. The third liability theory (concerning alleged misuse of TAOS’s financial information) was improper as a matter of law, as the parties’ agreement expressly permitted the use in question. Vacatur was not required, however. Intersil did not contend that the submission of the “packaging roadmap” theory to the jury was legal error sufficient to merit vacatur. And the submission of the financial misuse theory to the jury was harmless. The opinion describes how the record contained “overwhelming evidence” concerning the photodiode array liability theory, and there was nothing to suggest that Intersil could have arrived at its photodiode array design except by misappropriation. Intersil was therefore unable to show that the error concerning the financial misuse theory caused any actual harm.

Disgorgement of profits: The district court erred in the amount of its monetary award. First, TAOS’s damages theory did not explain “which of the trade secrets contributed to what amount of profit to be disgorged.” Op. at 20. Thus it was not possible to conclude that the remaining ground for liability (the photodiode array trade secret) supported the entire award. Second, the record contained unrebutted evidence that TAOS’s photodiode array design was no longer a secret after a certain date that fell within the jury’s damages period. Citing Fifth Circuit law, the opinion rejects TAOS’s theory that liability, for the purpose of monetary relief, could extend indefinitely. The disgorgement award is thus vacated. The jury’s award of exemplary damages is also vacated, for the same reasons.

The opinion also vacates the disgorgement for the separate reason that TAOS did not have a Seventh Amendment right to a jury decision on disgorgement. “Intersil is entitled to a decision on disgorgement by the trial court [not the jury], with findings of fact and conclusions of law duly entered in accordance with Rule 52.” Op. at 23. The opinion includes a lengthy discussion on this issue, reviewing Supreme Court precedent and journal articles before agreeing with Intersil that TAOS’s request for disgorgement of Intersil’s profits as a remedy for trade secret misappropriation sought a remedy not historically available at law, and thus not presentable to the jury under applicable Supreme Court law.

Infringement: The judgment of infringement was supported by sufficient evidence as to some claims, but not others. Three of the claims for which the jury found infringement were method claims that could be practiced only if the accused Intersil products were in a specific operating mode (“Mode 3”), and there was no evidence of them ever operating in that mode. The remaining claims required only capability of operating in Mode 3; the accused products had this capability. The evidence was sufficient for the jury to reject Intersil’s separate argument that the accused products’ Mode 3 capability was not fully “on the chip.”

Infringement damages: The district court erred in awarding separate damages for both the patent infringement and the trade secret misappropriation. Per Aero Products, 466 F.3d 1000 (Fed. Cir. 2006), “Double recovery for the same injury is inappropriate.” Op. at 41. Because Intersil’s use of TAOS’s photodiode array structure was the basis of liability for both trade secret misappropriation and patent infringement, the award of a royalty separate from the disgorgement above amounted to impermissible double recovery.

Cross-appeal

Extraterritorial sales: The district court did not err in entering summary judgment that TAOS could not recover damages for the large majority of Intersil’s sales of the accused product due to a lack of evidence that those sales were the result of domestic sales/offers to sell. Though both Intersil and its customer (Apple) were U.S. companies, and there was some evidence of domestic negotiation on certain sale terms, for the products in question there was insufficient evidence to create a material fact dispute as to the possibility that the sales were domestic. Citing Halo, 769 F.3d 1371 (Fed. Cir. 2014), the opinion notes that the products in question were manufactured and sold entirely overseas, and there was no evidence of domestic contract formation.

Denial of injunction: The district court abused its discretion in its treatment of TAOS’s request for an injunction against future patent infringement by Intersil. The mere fact that TAOO had requested a reasonable royalty as compensation for past infringement did not ipso facto establish the absence of irreparable harm, as per eBay, 547 U.S. 388 (2006). The opinion discusses how further analysis was needed to determine if there were other “hard-to-measure harms, such as impaired goodwill and competitive position, that can justify injunctions.” Op. at 47.

Denial of enhanced damages: With the parties’ consent, the district court’s denial of enhanced damages, which applied the Seagate standard, is vacated in view of Halo, 136 S. Ct. 1923 (2016).

Duplicative damages: In view of the vacatur of the disgorgement award, the court’s determination that the damages for breach of contract and tortious interference claims are duplicative of the disgorgement is also vacated.

KEYWORDS: TRADE SECRET; DISGORGEMENT; SEVENTH AMENDMENT; INFRINGEMENT (YES); METHOD CLAIMS; EXTRATERRITORIALITY; PERMANENT INJUNCTION; ENHANCED DAMAGES; DUPLICATIVE DAMAGES