LINEAR TECHNOLOGY CORP. v. MICREL

The opinion of the court was delivered by: Patel, Chief Judge.

On May 9, 1994, plaintiff Linear Technology Corporation brought this action against defendant Micrel, Inc., alleging that the MIC 2172 and MIC 3172 products infringed United States Patent No. 4,775,741 ("'741 patent") and Reexamination Certificate B1 4,755,741. This action was originally assigned to United States District Court Judge Eugene F. Lynch. Judge Lynch denied Micrel's motion for summary judgment on whether the '741 patent is invalid due to an on-sale bar pursuant to 35 U.S.C. § 102. See Order dated February 26, 1997. In the same order, Judge Lynch bifurcated this action for trial on the issue of whether the '741 patent is invalid due to an on-sale bar, and stayed all other issues for later discovery and trial. See id. at 2. On July 15, 1997, the action was reassigned to this court. The court conducted a bench trial on the limited issue of whether the '741 patent is invalid due to an on-sale bar.

Having considered the testimony presented at trial and the other evidence submitted by the parties, the court FINDS for defendant Micrel and enters the following findings of fact and conclusions of law in accordance with its obligations under Federal Rule of Civil Procedure 52(c). Fed. R.Civ.P. 52(c) (requiring judgment under Rule 52(c) to be supported by findings of fact and conclusions of law).

FINDINGS OF FACT

I. The Parties

1. Plaintiff Linear Technology Corporation ("LTC") is a corporation organized and existing under the laws of the State of California and having a principal place of business in Milpitas, California. Jt. Pretrial Conf. Stmt., at 3 ¶ 1.

2. Defendant Micrel, Inc. ("Micrel") is a corporation organized and existing under the laws of the State of California having its principal place of business in San Jose, California. Jt. Pretrial Conf. Stmt., at 3 ¶ 2.

II. Development Of '741 Patent And LT1070

3. The patent at issue in this case is United States Patent No. 4,755,741 ("'741 patent"), entitled "Adaptive Transistor Drive Circuit," as amended by Reexamination Certificates B1 4,755,741 and B2 4,755,741. The named inventor is Carl Nelson and LTC is the assignee of all right, title and interest in the '741 patent. Def.Exh. A-33; Nelson Testimony, 192:25-193:1.

4. Carl Nelson has been employed at LTC since 1981 as a Bipolar Design Manager. Nelson Testimony, 136:3-21. Among his primary duties are designing chips for LTC and the supervision of the design of chips. Nelson Testimony, 136:3-21. Nelson has been designing chips for about twenty-eight years and, during this time, he has been the named inventor on approximately twenty-five patents. Nelson Testimony, 193:1-8. Although not an employee of LTC's marketing department, Nelson assisted the training of salespersons on the types of applications for which LTC's products can be used. Nelson Testimony, 193:1-8.

5. The application that resulted in the '741 patent was filed on November 18, 1986. Def.Exh. A-33.

6. The '741 patent originally issued on July 5, 1988. The first reexamination certificate issued on May 14, 1991, following a request for reexamination filed by a third party on June 1, 1990. The second reexamination certificate issued on December 26, 1995, following additional requests for reexamination filed by a third party and by Micrel on April 28, 1994 and September 9, 1994, respectively. Pl.Exhs. 1-3.

7. The '741 patent discloses an "adaptive transistor drive circuit." Def. Exh. A-33 at 1:5-21. The adaptive transistor drive circuit disclosed in the '741 patent describes "switching regulator circuitry" used to provide regulated voltages or currents. Nelson Testimony, 143:1-2.

8. The LT1070 chip manufactured by LTC is a switching voltage regulator invented by Nelson and embodies an aspect of every claim contained in the '741 patent, except for claims 2 and 12. Nelson Testimony, 139:20-141:18; 199:20-200:17. However, the LT1070 switching regulator circuit embodies the inventions claimed in all of the claims of the '741 patent that LTC asserts are infringed by Micrel. Jt. Pretrial Conf. Stmt. at ¶ 7. The LT1070 silicon chip initially constructed and tested by Nelson was essentially a functioning version of the '741 patent. Nelson Testimony, at 142:18-25.

9. In essence, the '741 patent "grew out" of Nelson's development of the LT1070 chip. Nelson Testimony, 139:17-19. Figure 5 of the '741 patent illustrates how the invention is used in the LT1070. Nelson Testimony, 198:11-17.

10. Nelson originally designed the LT1070 on paper, but later converted the design as envisioned on paper into silicon or chip form in approximately April, 1985. Nelson Testimony, 142:1-20. In an entry dated April 18, 1985, Nelson noted in his workbook that the "silicon looks good," indicating that the chip functioned well enough to run tests on it to determine whether any problems or abnormalities existed in the silicon. Nelson Testimony, at 142:11-17; Def.Exh. A-31, at LIN 01299. At that stage, Nelson was confident that the LT1070 could eventually be made to work, although he remained uncertain as to whether it would meet all the initial design goals. Nelson Testimony, 212:4-16.

11. Although the LT1070 chip performed "basically" as Nelson had intended it to, he identified an extensive list of problems with the LT1070 chip which had to be "work[ed] out" before it would be fully functional. Nelson Testimony, 194:18-21; Def.Exh. A-31, at LIN 01299. Because of these problems, the LT1070 was not sufficiently "functional enough" to be ready for manufacture. Nelson Testimony, 194:22-195:1. Nelson later made a first "round" of "fixes" to the LT1070 chip. Def.Exh. A-31, at LIN 01311-01314.

12. Despite having constructed a LT1070 chip which was essentially functional, Nelson discovered additional problems with the LT1070 in early November 1985, including a low oscillator frequency, an overlong "delay in the current sense comparator," a "leakage problem in the power transistor," and other "small adjustments." Nelson Testimony, 194:3-196:16; Def.Exh. A-31 at LIN 01331 and 0334. These problems caused delays in the release of the LT1070 to production. Nelson Testimony, 197:12-14.

13. On November 11, 1985, Nelson recorded methods for fixing these problems in the LT1070 in his engineering notebook. Def.Exh. A-31 at LIN 0134; Nelson Testimony, 195:12-197:11. Once these problems were resolved, LTC issued a Release Product Listing ("RPL") for the LT1070 on November 18, 1985. The RPL essentially released the product into LTC's product line. Nelson Testimony, 198:1-7; Def.Exh. A-34.

14. Although Nelson testified that the LT1070 was not ready for manufacturing until well into 1986, LTC "does not dispute that the invention of the '741 patent was reduced to practice before November 18, 1985." LTC's Post-Trial Prop. Findings of Fact and Concl. of Law, at ¶ 29.

III. Efforts To Sell And Sales

A. LTC's Sales Organizational Structure

15. In 1985, LTC's sales force primarily consisted of independent sales representatives and distributors. Zapf Testimony, 241:7-242:19 (international distributors); Scott Testimony, 447:9-20 (sales force included domestic sales representatives and distributors). LTC's distributors purchased devices from LTC and resold the devices to end-user customers. Zapf Testimony, 241:20-25.

16. In 1985, LTC employed four Area Sales Managers in the United States and two in Europe. Exh. 201; Zapf Testimony, 242:11-25; 336:2-13. The Area Sales Managers were responsible for managing LTC's sales efforts within their sales territories. Zapf Testimony, 242:17-25. LTC's Area Sales Managers in Europe were Tom Lane and Andreas Meinelt, both of whom reported directly to Zapf. Zapf Testimony, 242:11-25.

17. In 1985, LTC's domestic sales network included twenty-two independent sales representative firms divided into four geographic territories and sixteen independent distributor firms. Pl.Exhs. 55 & 202.

18. In 1985, LTC also had a network of international distributors, acting as both LTC's sales representatives and distributors for LTC's products. Zapf Testimony, 241:7-19. These distributors included Svensk, Jermyn, Amitron, Stolz, Bacher, Neye, Henskes, Success Electric and Eltron. Zapf Testimony, 243:5-244:8.

19. Each of LTC's international distributors had a written distributorship agreement with LTC, containing substantially the same terms as in Exhibit A-70. Zapf Testimony, 267:3-12. Those agreements provided that the contracts were governed by California law. Zapf Testimony, 267:22-268:7; Def.Exh. A-70 at LIN 16445 ¶ 10.1. The written distributor agreements also provided that the distributors take title to the goods FOB LTC's plant or nearest warehouse duty unpaid, referring to LTC's plant in Milpitas where LTC manufactured its products. Zapf Testimony, 268:8-17; Def.Exh. A-70 at paragraph 4.3, LIN 16437.

20. LTC's international distributors purchased products from LTC and resold those products to their own customers in their territories. Zapf Testimony, 241:20-25. To purchase the products, the distributors sent their orders to LTC in California by telex. Zapf Testimony, 260:18-24. LTC received these orders at its plant in Milpitas, California. Zapf Testimony, 260:25-261:2. LTC accepted those orders in Milpitas and entered the orders into LTC's bookings system in Milpitas. Zapf Testimony, 261:3-8. Once the orders were entered into LTC's bookings system, acknowledgments were automatically generated by the system. Zapf Testimony, 261:9-13. Those acknowledgment forms were then sent back to the international distributors, acknowledging that the orders had been entered and booked by LTC. Zapf Testimony, 261:14-17. The international distributorship agreement provides that "all order for LINEAR Products from DISTRIBUTOR are subject to acceptance." Def.Exh. A-70, at LIN 16437 ¶ 4.4.

21. LTC's acknowledgments included an express provision that the purchaser is to take title to the goods in Milpitas, California. Def.Exh. A-74; Zapf Testimony, 261:21-262:25. Defendant's Exhibit A-74 is typical of the acknowledgment forms sent by LTC in 1985.

22. Invoices on shipments were issued by LTC from California. Zapf Testimony, 266:12-17.

B. LTC's Data Sheets

23. In 1985, LTC used product data sheets as one of its primary selling tools to provide information to potential customers about LTC's products in order to enable manufacturers to use LTC's component products in their own products. Nelson Testimony, 138:25-139:2; Def.Exh. A-32 [Nelson Decl.] at ¶ 7.

24. The LT1070 "preliminary" data sheet lists features of the LT1070 and provides technical information about the device, its applications, its electrical characteristics and its operation. Def.Exh. A-4 [LT1070 Preliminary Data Sheet]. The information is important to customers and was designed to grab the attention of customers and their engineers. Nelson Testimony, 163:8-25; 164:13-166:12.

25. Nelson explained that a preliminary data sheet is intended to be an introduction of what the part does, but does not "typically" contain full information on certain particulars. Nelson Testimony, 215:13-22. The preliminary data sheet shows customers what the product will do so that if the customer is at a point in their design phase when they are trying to decide how to do a particular function, the customer can look at the preliminary data sheet and determine whether they think the device would work for them. Nelson Testimony, 215:23-216:6. If a customer determined that the device would have some applicability to their needs, it could request samples and "a real data sheet" from LTC. Nelson Testimony, 216:1-7; see Def.Exh. A-12 [March 1985 Newsline], at LIN 06890.

26. Sales representative Mike Walters testified by deposition regarding the process he used to sell component products, such as those manufactured by LTC. In order to sell a product of a company like LTC, Walters stated that generally the approval of an employee in the purchasing company's engineering and purchasing departments was necessary. Walters Depo., 13:17-21. This process of getting a design engineer at a company to use a component product in one of the engineer's applications is known as a "design-in." Walters Depo., 14:10-20; 16:3-18; Stenstrom Testimony, 32:23-35:4.

27. Walters also testified that in the course of his business he sometimes used preliminary data sheets to generate interest in a customer for a part. Walters Depo., 40:4-13. According to Walters, a "preliminary data sheet" is "a data sheet with specifications on a part that says `preliminary' some place on it, meaning that to the customer it's probably not in production and something might change." Walters Depo., 39:24-40:9.

28. Nelson wrote the preliminary LT1070 data sheet, drafting the text and drawings to be included. Nelson Testimony, 160:9-15; 166:16-167:3. LTC worked with an outside "art house" to prepare the proof sheet for the preliminary LT1070 data sheet. Nelson Testimony, 167:2-9; Williams Testimony, 115:9-15. The drafts of the preliminary data sheet were subject to a process of internal review, a process which could take as long as three or four months. Nelson Testimony, 168:2-14.

29. On October 14, 1985, LTC initiated a purchase order for the printing of 500 copies of the LT1070 data sheet by Globe Printing Company. Def.Exh. A-55 [Globe Data Sheet File], at p. G0013; Williams Testimony, 105:25-106:23. On October 21, 1985, LTC provided Globe with the artwork for the Preliminary LT1070 data sheet, along with a photocopy. Williams Testimony, 106:24-107:3; 107:22-108:19.

30. Globe was not responsible for preparing any of the text, diagrams, or layout of the LT1070 data sheet, other than masking out page numbers. Williams Testimony, 109:18-110:20. Globe simply took the original artwork as received from LTC and printed it in paper form. Id. Globe delivered 500 copies of the Preliminary LT1070 data sheet to LTC on October 25, 1985. Def.Exh. A-55 [Globe's Data Sheet File, Delivery Record] at p. G0007; Williams Testimony, 109:11-17.

C. LT1070 Information Conveyed To Sales Force

31. Robert Scott was LTC's Product Marketing Manager in 1985. Scott Testimony, 442:7-15. In the Spring of 1985, Scott informed LTC's independent sales representatives that a product named the LT1070, a switch mode control chip, would be coming out. Scott Testimony, 444:15-24. Scott anticipated that the sales representatives and international distributors would then talk with customers and familiarize themselves with companies that might use the LT1070. Scott Testimony, 445:10-16. At this point, LTC began its efforts to commercialize the inventions of the '741 patent embodied within the LT1070.

32. On July 21-23, 1985, LTC hosted a three-day sales conference at the Marriott Hotel in Santa Clara, California. Def.Exh. A-13; Zapf Testimony, 269:22-24. All LTC independent sales representatives and international distributors were urged to attend, and many did so. Zapf Testimony, 271:4-16; Def.Exh. A-13 [Sales Conference Binder at ¶ 5-7, listing attendees]; Def.Exh. A-19 [Declaration of Robert Scott at ¶ 4] (purpose of meeting was "to inform those attending of new and future LTC products, including . . . unannounced products which were still being developed but which were not yet available for sale"). The domestic sales representatives who attended the sales conference included Richard Beals and Dan Zenor of Gassner & Clark Co. Def.Exh. A-13 [Sales Conference Binder at ¶ 5-7, listing attendees]. The international distributors who attended included representatives from Neye, Svensk, Microlog, Henskes and Stolz. Def.Exh. A-13; Zapf Testimony, 271:13-16, 272:16-273:2.

33. Two of the presentations during the July 1985 sales conference discussed the LT1070: (1) a Voltage Regulators and References clinic, and (2) a Marketing clinic taught by Robert Scott. Def.Exh. A-20 [July 1985 Sales Conference Binder at LIN 07020] (listing Carl Nelson as the presenter at the VR & REF Clinic); Def. Exh. A-13 [Sales Conference Binder], at GC0030 and GC00137.

34. During the Voltage Regulators and References Clinic, an application circuit diagram was displayed to the attendees showing how the LT1070 could be used. Def.Exh. A-13 [Sales Conference Binder at GC0136-37]. Richard Beals, an independent sales representative, sketched the LT1070 application circuit into his copy of the sales conference binder. Beals Depo., 45:12-48:16. The international distributors also attended the Voltage Regulators and References clinic and received the same training at the session given to everyone else. Zapf Testimony, 275:20-276:7.

35. During a Marketing clinic, Robert Scott discussed the LT1070 as an upcoming product. He informed LTC's sales representatives and international distributors that LT1070 data sheets and samples were expected in the Fourth Quarter and that production quantities were expected by the First Quarter. Def.Exh. A-13 [Sales Conference Binder at GC 0030]; Scott Testimony, 447:14-25; 450:8-15.

36. Scott presented the information about the LT1070 so that the sales representatives and international distributors would identify and familiarize themselves with customers who might be able to use the LT1070. Scott Testimony, 448:1-4. The sales representatives and distributors were allowed and expected to discuss the LT1070 and its function with customers, and they were asked to explore possible applications for the LT1070. Scott Testimony, 448:9-18.

D. Sales Representatives Promotion Of The LT1070

1. Samples

37. Samples were provided free of charge to LTC's customers as part of LTC's Marketing program and were generally shipped out of LTC's finished goods inventory. Berry Testimony, 403:5-20. Sample requests came from sales representatives and ordinarily identified the customer for whom the samples were intended as well as the anticipated future usage by the customer. Zapf Testimony, 247:17-23; 249:1-2, 10-19; 254:11-14. Along with data sheets, samples were among the primary means of introducing a product to customers. Walters Depo., 52:13-19. Customers could use samples to test whether a LT1070 "design-in" functioned properly. Walters Depo., 64:8-23.

38. Following the July 1985 sales conference, from July 17 to November 18, 1985, LTC received 26 separate requests for LT1070 samples from its domestic and international sales force, 25 of which identified the specific customer for whom the samples were intended. Def.Exh. A-79 [summary chart of sample requests]. Specifically: