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

United States Court of Appeals, Federal Circuit

May 1, 2018

TEXAS ADVANCED OPTOELECTRONIC SOLUTIONS, INC., Plaintiff-Cross-Appellant
v.
RENESAS ELECTRONICS AMERICA, INC., F/K/A INTERSIL CORPORATION, Defendant-Appellant

          Appeals from the United States District Court for the Eastern District of Texas in No. 4:08-cv-00451-RAS, Judge Richard A. Schell.

          Jamil Alibhai, Munck Wilson Mandala, LLP, Dallas, TX, argued for plaintiff-cross-appellant. Also represented by Michael Andrew McCabe, Kelly P. Chen, Michael Craig Wilson, Robert D. McCutcheon, Jessica Spaniol, Jordan C. Strauss.

          Gregory A. Castanias, Jones Day, Washington, DC, argued for defendant-appellant. Also represented by Daniel Kazhdan; Richard J. Johnson, Dallas, TX; Gregory Louis Lippetz, Palo Alto, CA.

          Before Dyk, Bryson, and Taranto, Circuit Judges.

          Taranto, Circuit Judge.

         Texas Advanced Optoelectronic Solutions, Inc., (TAOS) and Intersil Corporation each develop and sell ambient light sensors, which are used in electronic devices to adjust screen brightness in response to incident light. In the summer of 2004, the parties confidentially shared technical and financial information during negotiations regarding a possible merger. The parties ultimately went their separate ways, but soon after, 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, as well as for trade secret misappropriation, breach of contract, and tortious interference with prospective business relations under Texas state law. After a trial held in early 2015, a jury returned a verdict for TAOS and awarded damages on all four claims. The court ruled on the parties' post-trial motions and entered final judgment, and both parties appealed.

         We now affirm in part, reverse in part, vacate in part, and remand. Among our rulings, we affirm liability for trade secret misappropriation, though on a more limited basis than TAOS presented to the jury, and we affirm liability for infringement of the asserted apparatus claims of the patent at issue. But we vacate the monetary awards, and we remand for further proceedings.

         I

         A

         In the early 2000s, TAOS and Intersil were both developing ambient light sensors for electronic devices. Ambient light sensors use a silicon- or other semiconductor-based photodiode that absorbs light and conducts a current. The resulting photocurrent is detected by a sensor, and measurements of the current, a function of the ambient light, are used to adjust the brightness of an electronic screen display. One benefit is better visibility- e.g., a brighter screen is more visible in a bright environment; another is improved battery efficiency-e.g., a dimmer screen, sufficient in a dark environment, uses less power. To protect the ambient light sensor within an electronic device, the sensor is typically encased in clear packaging, such as glass or plastic.

         A problem with using a silicon-based photodiode is that silicon absorbs not only visible light but also light, such as infrared light, that humans cannot see. If the sensor detects a change in infrared light, it may respond by making a corresponding adjustment in the screen's brightness, even though the adjustment does not improve, and may even impair, the screen's visibility to the human eye. For example, turning on an incandescent lamp, which emits much of its energy in the form of infrared light, would indicate to the sensor a much greater increase in ambient light than the human eye will detect. The screen brightness would then be greatly, rather than only slightly, increased, wasting power and possibly impairing visibility. '981 patent, col. 1, lines 22-29.

         One solution to that problem was to place a filter over the sensor (synonymously, detector) to prevent infrared radiation from reaching it. Although effective, those filters add cost. Id., col. 1, lines 37-42.

         TAOS conceived another solution, one that does not require using such filters. In 2001 and 2002, TAOS began developing the ambient light sensor TSL2550. The technology used in the TSL2550 is featured in TAOS's '981 patent, applied for in January 2002 and issued in July 2003. TAOS's solution in the TSL2550, and in the '981 patent, was to include in the silicon substrate an array of diodes-some shielded from visible light (shielded diodes), some exposed to visible light (exposed diodes). Id., col. 3, lines 33-36. In that design, only infrared light produces a photocurrent in the shielded diodes, while infrared and visible light do so in the exposed diodes. See id., col. 2, line 49 through col. 3, line 30. A processor calculates the ratio of the photocurrents in exposed diodes to photocur-rents in shielded diodes or vice versa and, based on that information, factors out the infrared light to determine the amount of visible light-which can then be used for screen brightness adjustments. Id., col. 3, lines 24-27.

         The '981 patent specification describes an embodiment in which the silicon substrate consists of two wells, one shielded and one exposed, id., col. 1, lines 44-52, where each well is a photodiode, see id., col. 2, lines 56-57 (the well/substrate junction is a diode junction). See also id., col. 6, lines 42-49 (claim 1 covers a substrate with two wells, one shielded and one exposed). The specification also discloses an embodiment in which the photodiode array structure of the silicon substrate is a repeating pattern of shielded and exposed wells in a 3:1 ratio. See id., col. 4, lines 5-8 & Fig. 2. TAOS used the latter embodiment in the TSL2550, released by TAOS in 2002.

         In 2003 and 2004, TAOS began developing its second-generation product, the TSL2560. TAOS changed the photodiode array structure from the repeating pattern of shielded and exposed wells in a 3:1 ratio (TSL2550) to a repeating pattern of shielded and exposed wells in a 1:1 ratio (TSL2560). The parties refer to the latter pattern as an "interleaved" or "alternating" array. TAOS found that the interleaved 1:1 ratio design improved light sensitivity.

         Meanwhile, Intersil was working on its own ambient light sensors. Its EL7900 used a colored filter over the detector to reflect all infrared light. Intersil also began developing the EL7903, which it later renamed ISL29001. By early February 2004, the design for the EL7903 included a color filter and plastic packaging.

          In February 2004, Intersil approached TAOS to ask for a license to the TSL2550 technology (repeating 3:1 photodiode array). TAOS was not interested in granting such a license, but it was willing to consider a potential merger. On June 3, 2004, TAOS and Intersil executed a Confidentiality Agreement "in order to allow both parties to evaluate the Possible Business Relationship" by disclosing to the other "information relating to our respective businesses and operations ('Confidential Information')." J.A. 23828. Under that Agreement, a "Permitted Use" of "Confidential Information" was use "for the limited purpose of enabling the recipient of such information (the 'Recipient') to investigate and evaluate the business and financial condition of the other (the 'Provider') in connection with such discussions and negotiations." Id. The Agreement included familiar clarifications of what did not constitute "Confidential Information": information publicly available as of the date of the Agreement; information publicly available after the date of the Agreement, as long as it was not made publicly available by the Recipient in violation of the Agreement; and information that "was known by the Recipient prior to the date of [the Agreement] and such knowledge was documented in the Recipient's written records prior to such date." J.A. 23828-29.

         TAOS and Intersil engaged in diligence meetings throughout June 2004. During those meetings, TAOS disclosed the technical aspects of the not-yet-released TSL2560 with the 1:1 interleaved diode array structure. TAOS also disclosed that it planned to use glass rather than plastic packaging for its sensors, glass being more expensive but also more reliable and more useful for especially small sensors. And TAOS provided financial information, including information about prices it paid for inputs into its products. Intersil used that financial information to prepare an internal "Build vs. Buy analysis" to decide whether Intersil should build up its own optoelectronics program or instead buy TAOS.

          At the end of the June 2004, Intersil offered to buy TAOS. But after a series of offers and counter-offers, the parties failed to come to an agreement. Negotiations ended in August 2004.

         On August 31, 2004, Intersil decided to pursue a design of interleaved photodiodes in a 1:1 ratio for the EL7903/ISL29001, a product already in development. In 2005, while Intersil was redesigning the EL7903/ ISL29001, TAOS released the TSL2560. In early 2005, TAOS also won a contract from Apple to supply ambient light sensors-specifically, the TSL2561, a derivative of the TSL2560-for use in Apple's iMac computers. Intersil reverse-engineered the TSL2560 in late January 2006.

         Between late 2005 and late 2006, Intersil put its EL7903/ISL29001 and next-generation ISL29003 into the market. In September 2006, Intersil won a contract from Apple to supply the ISL29003 for the Apple iPod, and it began selling its products to Apple in June 2007. Apple later solicited bids for ambient light sensors for use in the iPhone 3G smartphone; by March 2008, Apple selected Intersil's product. In contrast, TAOS had won the supply contract for ambient light sensors in the original Apple iPhone, before the 3G version, and it won the Apple supply contracts for iPhones after the 3G version.

         B

         On November 25, 2008, TAOS sued Intersil in the U.S. District Court for the Eastern District of Texas for infringement of the '981 patent and, under Texas law, for trade secret misappropriation, breach of contract, and tortious interference with contractual relations. TAOS invoked the court's patent, diversity, and supplemental jurisdiction. See 28 U.S.C. §§ 1332, 1338, 1367. Before trial, the court limited patent damages: it granted summary judgment excluding 98.8% of Intersil's sales of allegedly infringing products on the ground that a jury could not find those sales to be the result of sales or offers to sell domestically. Tex. Advanced Optoelec. Sols., Inc. v. Intersil Corp., No. 4:08-cv-451, 2015 WL 13469997, at *4 (E.D. Tex. Feb. 11, 2015) (SJ Order). After a trial held in April 2015, a jury returned a verdict for TAOS on all claims and awarded (1) $73, 653.51 as a reasonable royalty for patent infringement; (2) $48, 783, 007 in disgorge-ment of Intersil's profits and $10 million in exemplary damages for trade secret misappropriation; (3) $12 million as a reasonable royalty for breach of contract; and (4) $8 million in lost profits and $10 million in exemplary damages for tortious interference.[1] The jury also found Intersil's infringement to be willful.

         After the trial, TAOS moved for an injunction and enhanced damages for willful patent infringement, and Intersil moved for judgment as a matter of law and for a new trial. The court denied both of TAOS's motions as well as Intersil's motion for a new trial. Tex. Advanced Optoelec. Sols., Inc. v. Intersil Corp., No. 4:08-cv-451, 2016 WL 1659926, at *3, *7-8 (E.D. Tex. Apr. 26, 2016) (Post-trial Order) (denying TAOS's motion for enhanced damages and Intersil's motion for a new trial); Tex. Advanced Optoelec. Sols., Inc. v. Intersil Corp., No. 4:08-cv-451, 2016 WL 1615741, at *4-5 (E.D. Tex. Apr. 22, 2016) (Injunction Order) (denying TAOS's motion for an injunction). The court also denied Intersil's motion for judgment as a matter of law, except that the court granted Intersil's motion for judgment of no willful infringement as a matter of law. Post-trial Order, 2016 WL 1659926, at *9-10.

         TAOS filed a motion for entry of final judgment, which the court granted in part and denied in part. Id. at *3-6. In response to TAOS's motion, Intersil argued that the jury awards on each claim were duplicative, and that TAOS should be awarded relief on only one. See id. at *4. The court concluded that the damages awarded for breach of contract and for tortious interference were duplicative of the monetary award for trade secret misappropriation. Id. at *4. It found no duplication in the patent infringement and trade secret misappropriation awards and allowed both to stand. Id. at *5. The court entered final judgment on June 9, 2016.

         Both parties appealed. We have jurisdiction under 28 U.S.C. § 1295(a)(1).

         II

         Intersil argues that (A) it is not properly liable for trade secret misappropriation; (B) the disgorgement award is excessive; (C) the district court erred in relying on the jury's verdict on disgorgement, which presented an equitable issue for the court to decide and therefore required the court to enter findings of fact and conclusions of law under Fed.R.Civ.P. 52(a)(1); (D) patent infringement was not proved; and (E) the patent infringement damages are duplicative of the trade secret award.

         We review de novo the denial of the motion for judgment as a matter of law. i4i Ltd. P'ship v. Microsoft Corp., 598 F.3d 831, 841 (Fed. Cir. 2010) (applying Fifth Circuit law). A motion for judgment as a matter of law "is appropriate only if the court finds that a 'reasonable jury would not have a legally sufficient evidentiary basis to find for the party on that issue.'" Id. (quoting Fed.R.Civ.P. 50(a)(1)). A new trial of limited scope may be a proper form of relief on a motion for judgment as a matter of law. See Fed. R. Civ. P. 50(b)(2); Cone v. W.Va. Pulp & Paper Co., 330 U.S. 212 (1947); 9B Arthur R. Miller, Federal Practice and Procedure §§ 2538, 2540 (3d ed. Apr. 2018 update).

          A

         Intersil argues that we must reverse the jury verdict of liability for trade secret misappropriation. We disagree, although we agree that the verdict cannot properly rest on some of the bases TAOS presented to the jury.

         1

         In its complaint filed in 2008, TAOS asserted a claim of trade secret misappropriation. Compl. at 23-24, Tex. Advanced Optoelec. Sols., Inc. v. Intersil Corp., No. 4:08-cv-451 (E.D. Tex. Nov. 25, 2008), ECF No. 1. Under the applicable Texas common law, a trade secret is "any formula, pattern, device or compilation of information which is used in one's business and presents an opportunity to obtain an advantage over competitors who do not know or use it." In re Bass, 113 S.W.3d 735, 739 (Tex. 2003) (citation omitted); accord Hyde Corp. v. Huffines, 314 S.W.2d 763, 769 (Tex. 1958) (adopting the definition of a trade secret in the Restatement (First) of Torts § 757 (1939)). "One who discloses or uses another's trade secrets, without a privilege to do so, is liable to the other if (a) he discovers the secret by improper means, or (b) his disclosure or use constitutes a breach of confidence reposed in him by the other in disclosing the secret to him." Hyde, 314 S.W.2d at 769 (quoting Restatement of Torts § 757).[2]

         At trial, TAOS asserted that Intersil had misappropriated three trade secrets-two financial and one technical: (1) TAOS's detailed financial information, allegedly used by Intersil in making its "Build vs. Buy" decision; (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, J.A. 23722; see also J.A. 19561-63; J.A. 24041; and (3)the 1:1 interleaved photodiode array structure, allegedly used by Intersil in modifying its products (the EL7903/ISL29001). TAOS's theory of liability was that Intersil's use of those trade secrets "constitute[d] a breach of confidence reposed in [Intersil] by [TAOS] in disclosing the secret to [Intersil]." Hyde, 314 S.W.2d at 769 (quoting Restatement of Torts § 757(b)); see Joint Proposed Pretrial Order at 4-5, Tex. Advanced Optoelec. Sols., Inc. v. Intersil Corp., No. 4:08-cv-451 (E.D. Tex. Feb. 18, 2015), ECF No. 501 (TAOS's contentions that "[a]fter the Confidentiality Agreement was executed, TAOS provided Intersil with its confidential information and trade secrets, " and "Intersil misappropriated TAOS's trade secrets when [Intersil] . . . utilized TAOS's trade secrets to revamp the designs for [Intersil's] first digital ambient light sensor and develop its new line of ambient light sensors"); see also Hyde, 314 S.W.2d at 769-70 (example of liability under Restatement § 757(b): Where "'A has a trade secret which he wishes to sell with or without his business[, ] . . . B is a prospective purchaser[, ] . . . [and, ] [i]n the course of negotiations, A discloses the secret to B solely for the purpose of enabling him to appraise its value[, ] . . . B is under a duty not to disclose the secret or use it adversely to A.'" (quoting Restatement § 757 cmt. j)).

         2

         According to Intersil, there is insufficient evidence to support a jury verdict of trade secret misappropriation based on the glass packaging information and the photo-diode array structure, and the "Build vs. Buy" analysis does not, as a matter of law, constitute misappropriation.

          a

         At trial TAOS asserted that Intersil misappropriated TAOS's packaging roadmap and cost-breakdown information for the TSL2560 showing the high expense of the glass packaging component. Intersil does not dispute that information of that type can qualify as a trade secret. See Glob. Water Grp., Inc. v. Atchley, 244 S.W.3d 924, 928 (Tex. App. 2008) (noting that "device[s]" and "pricing information" may constitute trade secrets); Restatement of Torts § 757 cmt. b (same). Instead, Intersil argues that TAOS failed to show that Intersil acquired this information by misappropriation from TAOS. We agree.

         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 in June 2004. As shown by written documentation, Intersil also recognized in February 2004 that plastic would provide "low cost packaging" that would "offer a price advantage." J.A. 30499. Intersil did not misappropriate information that it already had. Use of such independently possessed information is no more a misappropriation than is use of one's "independent invention, " against which "trade secret law does not offer protection." Philips v. Frey, 20 F.3d 623, 629 (5th Cir. 1994) (applying Texas law).[3] We therefore conclude that no substantial evidence supports finding misappropriation based on the asserted glass packaging trade secret.

          b

         For the second trade secret, Intersil does not dispute the sufficiency of the evidence regarding the act of misappropriation. Instead, Intersil contends that the photodi-ode array structure was no longer "secret" in 2004 (the time of the misappropriation) because, it says, the '981 patent disclosed that structure in 2003. We disagree.

         The asserted trade secret is a structure that includes both a 1:1 ratio of shielded to unshielded wells and interleaving of the wells in that ratio, i.e., repetition of the 1:1 ratio in an alternating pattern (requiring more than one set of wells). The patent discloses, individually, a 1:1 ratio and interleaving of shielded and unshielded wells. E.g., '981 patent, col. 1, lines 44-51 (1:1 ratio); id., col. 4, lines 4-17 & Fig. 2 (interleaving wells in a 3:1 ratio). But Intersil does not argue-and does not point to any evidence or argument at trial-that the patent discloses the combination of those features. Intersil instead treats the two features as if they were the same thing. See Intersil Br. 17 ("the alternating (i.e., 1:1) diode structure"); id. at 27-28 (describing the patent's disclosure of a 1:1 ratio); see also id. at 7, 15, 16, 23 (referring to the trade secret as the "1:1 ratio"); Reply Br. 1-2 (referring to the "supposedly 'secret' 1:1 ratio"); id. at 3, 5-8, 10 (similar). Intersil therefore has waived the argument that a reasonable jury could not find that the patent fails to disclose the combination of both features.[4]

          In any event, a reasonable jury could find as much. TAOS Chief Executive Officer Kirk Laney explained that the critical "adjustment[]" made to the earlier product shown in Figure 2 of the patent (the TSL2550 with an interleaved 3:1 ratio design) was making the ratio "1:1, whereas . . . in this diagram [in Figure 2 of the patent], it could be multiple dark [shielded] diodes." J.A. 19511; see also id. (Mr. Laney: "[W]e found that by doing it 1:1, we could get a better, more uniform result as well as increase sensitivity as well."); J.A. 19561 (Mr. Laney describes how TAOS explained to Intersil during the 2004 negotiations that TAOS "had learned a lot from the 2550 to do a - roughly a 1:1 ratio of the diode structure as they go across the silicon."); J.A. 19613 (Mr. Laney: "The 2550 had actually three covered diodes between each light diode . . . ."); J.A. 20399 (same testimony from '981 patent named inventor Eugene Dierschke). And TAOS argued to the jury that the combination, not simply the 1:1 ratio, was the misappropriated trade secret. J.A. 22755 (TAOS counsel arguing in closing statement that Intersil's product "uses the dual-diode approach, interleaved photodiode array, a 1:1 ratio in area, multiple cells"); J.A. 22833 (same in rebuttal).

         c

         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. Intersil argues that this is an improper basis for liability because the Confidentiality Agreement clearly permitted that use. We agree.[5]

         The Agreement was designed "to allow both parties to evaluate the Possible Business Relationship" by disclosing "information relating to our respective businesses and operations ('Confidential Information'), " and a "Permitted Use" of Confidential Information was "for the limited purpose of enabling the recipient of such information (the 'Recipient') to investigate and evaluate the business and financial condition of the other (the 'Provider') in connection with such discussions and negotiations." J.A. 23828. Intersil properly used TAOS's financial information in its "Build vs. Buy" analysis "to evaluate the Possible Business Relationship, " id., by analyzing whether to build its own optoelectronics program or to buy TAOS and incorporate TAOS's program, J.A. 24660. Even TAOS understood the Agreement to allow for that type of analysis, as TAOS used Intersil's confidential information in the same way to determine whether TAOS should merge or grow. See J.A. 42157 (TAOS requested Intersil's "detailed breakout for percent-of-revenue by function" to "evaluate the business fit" and "weigh[] [the] possibilities of merg[ing] against moving through a rapid growth phase with equity investment to expand our sales, application, and development teams"); TAOS Br. 52 n.4 (stating that TAOS's grow versus sell "activity was permitted by the Confidentiality Agreement").

          Although it is undisputed that Intersil used TAOS's information for the "Build vs. Buy" analysis, that use was contractually permitted and therefore not a proper basis of liability for trade secret misappropriation. In this case, where the contract is clear, it "is a question of law for the court" whether the contract permitted Intersil's conduct. X Techs., Inc. v. Marvin Test Sys., Inc., 719 F.3d 406, 413- 14 (5th Cir. 2013). As a matter of law, we conclude, the Confidentiality Agreement provided Intersil the "privilege" to use the information in the way Intersil used it, so Intersil's use did not "constitute[] a breach of confidence reposed in [Intersil] by [TAOS] in disclosing the secret to [Intersil]." Hyde, 314 S.W.2d at 769 (quoting Restatement of Torts § 757).

         At oral argument in this court, TAOS suggested that Intersil's act of misappropriation was not use of the secret information for its "Build vs. Buy" analysis, but use of that information to "design, build, market, and sell ambient light sensors rather than using it for the purposes of determining whether to purchase us." Oral Argument at 38:23-34. But that theory of use of detailed financial information in the actual building of products was not TAOS's theory of liability at trial, which instead was directly about the "Build vs. Buy" analysis. TAOS was clear about its trial position in its closing argument:

They got the [secret] information, and they conducted a build versus buy analysis. It's all over the documents. It's all over the testimony. . . . They conduct . . . a build versus buy analysis related to the products . . . and they were working to better understand the design and packaging/the secret ...

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