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Trustees of Boston University v. Everlight Electronics Co., Ltd.

United States District Court, D. Massachusetts

April 26, 2016

TRUSTEES OF BOSTON UNIVERSITY, Plaintiff,
v.
EVERLIGHT ELECTRONICS CO., LTD., et al., Defendants. TRUSTEES OF BOSTON UNIVERSITY, Plaintiff,
v.
EPISTAR CORPORATION, et al., Defendants. TRUSTEES OF BOSTON UNIVERSITY, Plaintiff,
v.
LITE-ON INC., et al., Defendants.

MEMORANDUM AND ORDER

PATTI B. SARIS CHIEF UNITED STATES DISTRICT JUDGE

INTRODUCTION

The defendants, Everlight and Epistar, have asserted the affirmative defense of laches, alleging that they should not be liable for any pre-suit damages because the plaintiff, Trustees of Boston University (BU), unreasonably delayed in filing suit against them, and this delay caused the defendants material economic prejudice. BU responds that any delay was excusable due to its other active patent cases and because the defendants have not proven that they would have changed their infringing behavior had BU sued earlier. BU has moved for prejudgment and postjudgment interest and an entry of judgment. After a jury trial and two-day laches bench trial, the Court finds for the plaintiff on the issue of laches and ORDERS all defendants to pay the jury-awarded damages, plus prejudgment and postjudgment interest.[1]

FINDINGS OF FACT

I. Background of Litigation

On November 11, 1997, the U.S. Patent and Trademark Office (PTO) issued patent number 5, 686, 738 (‘738 patent), entitled “Highly Insulating Monocrystalline Gallium Nitride Thin Films, ” naming Theodore Moustakas as the inventor and BU as the assignee. Gallium Nitride (GaN) thin films are common components of blue light-emitting diodes (LEDs). LEDs are semiconductor devices that emit light when charged with an electric current. LEDs containing GaN thin films can be found in light bulbs, laser printers, optical-fiber communication networks, and flat-panel displays of handheld devices and televisions.[2]

On March 26, 2001, BU and Cree, an LED manufacturing company, entered into an exclusive license agreement, which required Cree to implement a program to enforce the ‘738 patent against infringers, but did not require Cree to bring more than one infringement lawsuit at a time. From May 3, 2001 until the current case was filed, Cree and BU were engaged in six lawsuits to enforce the ‘738 patent:

Case Name

Date Filed

Date Terminated

BU v. Nichia Corp.

5/3/2001

11/26/2002

BU v. Nichia Corp.

5/3/2001

10/30/2001

BUv. AXT Inc.

6/10/2003

4/19/2004

Cree, Inc., v. Bridgelux, Inc.

9/11/2006

8/21/2007

Bridgelux, Inc. v. Cree, Inc.

10/17/2006

1/7/2009

Honeywell Int’l Inc. v. Philips

4/30/2008

3/6/2009

Docket No. 1669 at 3. Starting in March 2011, BU and Cree began discussions to amend their license agreement so that BU could prosecute infringement actions on its own behalf. On January 30, 2012, BU and Cree ended their exclusive license arrangement and BU took back control of the ‘738 patent.[3]

Epistar and Everlight are different corporations with close ties. In 2006, Everlight’s chairman of the board, Robert Yeh, was also the vice chairman of the board of Epistar. From 2006 to 2012, Everlight was one of Epistar’s largest single shareholders and controlled over $100 million in Epistar stock. Everlight held itself out to customers as being vertically integrated with Epistar and used this relationship for marketing purposes. Epistar is indemnifying Everlight for all legal expenses in defending this suit because Epistar’s chips are inside of the accused Everlight LED packages.

On October 17, 2012, BU filed the present action against Everlight and, on December 14, 2012, filed suit against Epistar. Epistar and Everlight continued selling the accused infringing products after BU filed suit.[4]

II. Epistar

A. Plaintiff’s Knowledge of Infringement by Epistar or its Predecessors

One key issue in the laches inquiry is when the plaintiff knew about the defendants’ infringement. In some circumstances, the plaintiff’s knowledge of infringement by a defendant’s predecessor company can start the period of delay with respect to laches. In April 2002, in a draft internal presentation, BU’s current head of licensing, Michael Pratt, wrote that United Epitaxy was part of a large group of companies in the LED market whose products infringed on the ‘738 patent. In August 2005, United Epitaxy merged with Epistar, a merger covered widely in industry journals. There is no evidence that Epistar continued to manufacture any of United Epitaxy’s products post-merger.

On February 7, 2005, Cree sent a letter accusing another company, Epitech, of infringing the ‘738 patent. In the following months, the parties engaged in additional written correspondence regarding Cree’s allegations. On October 25, 2005, Cree terminated the exchange in a letter advising Epitech that it “will vigorously enforce its patent rights against Epitech if Epitech manufactures, uses, offers to sell or sells its infringing LEDs in the United States.” PTX 1520.

In October 2010, representatives of Cree and Epistar met for the first time to discuss licensing Cree’s LED patent portfolio, which included the ‘738 patent. In these discussions, Cree never accused Epistar of infringing the ‘738 patent.

B. Prejudice to Epistar

The second key issue in a laches inquiry is whether the defendant suffered any harm caused by the plaintiff’s delay in filing suit. On September 28, 2006, Epistar spent $322 million to merge with Epitech. Meng Kuo, the director of Epistar’s intellectual property division, never discovered Cree’s letter accusing Epitech of infringement, despite her direct involvement in the due diligence for the merger. She credibly claimed that if Epistar had known about a possible infringement claim, it would have negotiated a lower price or contractual provisions protecting it from liability. Significantly, one month after Epistar acquired Epitech, it discontinued all of Epitech’s products.

In April 2007, Cree accused Epistar’s customer, Everlight, of infringing on the ‘738 patent. Because the accused products contained Epistar chips, Everlight immediately turned to Epistar for help defending against Cree’s accusation. At this point, no court had construed the claim term “grown on” in the ‘738 patent. Epistar interpreted the term to mean that the buffer layer was the first layer immediately above the sapphire substrate. According to Epistar, the first layer in its chip was single crystalline aluminum nitride. The ‘738 patent claims a non-single crystalline gallium nitride buffer layer, so Epistar took the position that its chips did not infringe the patent and provided a report to that effect to Everlight in January 2008. Around this time in early 2008, Epistar became aware of Cree’s ongoing litigation with Bridgelux, one of Epistar’s customers, over the ‘738 patent. In August 2008, the court in the Bridgelux litigation construed the term “on” to mean “positioned indirectly or directly above.”[5] Remarkably, Kuo testified that she never read that court’s claim construction order, and later learned that Cree and Bridgelux had settled the case. Significantly, even after this Court construed the term “grown on” to mean “formed indirectly or directly above, ”[6] Epistar still maintained that the gallium nitride layer in its chips, located above the aluminum nitride layer, was single crystalline and did not infringe. Epistar insisted on this noninfringement position throughout the trial.

In 2007, Epistar had only $48, 913 in accused sales which increased to $47.4 million in 2011. From 2011 to 2013, Epistar’s sales and shipments of GaN LED chips to the United States accounted for less than 0.2% of its worldwide sales. When BU sued Epistar in 2012, it did not alter its production or sales methods to avoid infringement. Kuo testified that because the patent was set to expire in 2014, there was little financial incentive for Epistar to adjust its supply relationships, design around the ‘738 patent, or seek a licensing agreement after BU sued. However, Epistar, through its business relationship with Everlight, knew in 2007 that Cree had accused its chips of infringing on the ‘738 patent. Epistar did nothing to change its behavior, even though seven years were left on the life of the patent. This Court finds that the primary reason that Epistar did not change its behavior was its persistent belief it did not infringe.

III. Everlight

A. Plaintiff’s Knowledge of Infringement by Everlight or its Predecessor

In May 2004, Cree accused Fairchild Semiconductor of infringing the ‘738 patent, but never followed up on its accusation. At the time of Cree’s accusation, Everlight manufactured LED products for Fairchild based on Fairchild’s specifications and Fairchild sold these products all over the world. In order to cut out the middleman, Everlight acquired Fairchild’s LED business assets in early 2006. Cree learned of the acquisition through press releases. Bernd Kammerer, then the chief operating officer of Everlight Americas, was in charge of the acquisition of Fairchild. He did not uncover Cree’s accusation of infringement during the due diligence process leading up to the acquisition. He credibly claimed that, had he known of the accused infringement, he would have attempted to negotiate a lower purchase price, an indemnity agreement, or a contractual provision limiting Everlight’s post-acquisition liability.

On April 18, 2007, in a meeting between representatives of Cree and Everlight, Cree provided Everlight with a Powerpoint presentation accusing Everlight of infringing the ‘738 patent. After this initial meeting, Everlight reached out to Epistar, its chip supplier, for assistance in defending against Cree’s allegations. Epistar ordered independent testing of its accused LED chips and commissioned an IP law firm to provide an infringement opinion and to represent Everlight in discussions with Cree. Cree and Everlight continued their correspondence and, on January 16, 2008, Everlight provided Cree with the noninfringement analysis developed by Epistar in the form of a Powerpoint presentation. In that presentation, Everlight represented to Cree that, from 2002 to 2007, Everlight had only $4, 194 in U.S. sales.

After the January 2008 meeting, Cree and Everlight reached a business solution, whereby Everlight agreed to buy more Cree chips. However, Cree never agreed to not file suit, and did not waive any of its infringement claims against Everlight. Nonetheless, from early 2008 to the filing of the present suit, Cree did not take any action against Everlight for its infringement.

B. Prejudice to Everlight

In 2007, Everlight had total accused sales of $13.4 million which increased to $24 million in 2012. This expansion included developing an estimated 80 to 130 new LED packages every year that utilized GaN LED chips. During these years, Everlight invested approximately $10 million to $16 million per year in the research and development of new GaN LED packages. From 2007 to 2013, Everlight’s sales to the United States accounted for less than 5% of its worldwide GaN LED package sales.

Since Everlight began purchasing GaN LED chips, it has purchased from several different suppliers including Epistar, Toyoda Gosei, Cree, and various Chinese companies. Cree manufactures noninfringing LED chips using a silicon carbide substrate. Everlight regularly alters its production line to adapt to chips from different suppliers using different substrates, a process which usually takes eight to ten weeks to complete. Silicon carbide chips, unlike ...


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