United States District Court, N.D. California
November 10, 2005.
O2 MICRO INTERNATIONAL LIMITED, a Cayman Islands corporation, Plaintiff,
MONOLITHIC POWER SYSTEMS, INC., a California corporation, and DOES 1 through 10, Defendant. MONOLITHIC POWER SYSTEMS, INC., a California corporation, Counterclaimant, v. O2 MICRO INTERNATIONAL LIMITED, a Cayman Islands corporation, and O2 MICRO, INC., a California corporation, Counterdefendants.
The opinion of the court was delivered by: CLAUDIA WILKEN, District Judge
ORDER DENYING O2 MICRO'S MOTION FOR PERMANENT INJUNCTION; GRANTING
IN PART AND DENYING IN PART MPS' RENEWED MOTION FOR JUDGMENT AS A
MATTER OF LAW ON CERTAIN ISSUES; AND ADDRESSING OTHER ISSUES;
FINDINGS OF FACT AND CONCLUSIONS OF LAW AFTER BENCH TRIAL
Plaintiff and Counterdefendant O2 Micro International Limited
and Counterdefendant O2 Micro, Inc. (collectively, O2 Micro) move
for a permanent injunction and seek a finding of inequitable conduct and a finding that the case is exceptional under Title
35 U.S.C. section 285. O2 Micro further seeks, under the California
Uniform Trade Secrets Act, exemplary damages, an award of a
reasonable royalty and attorneys' fees. Defendant and
Counterclaimant Monolithic Power Systems, Inc. (MPS) opposes
MPS renews, pursuant to Federal Rule of Civil Procedure 50(b),
its motion for judgment as a matter of law on issues related to
O2 Micro's requests. MPS argues that neither the jury's unjust
enrichment damages award nor the underlying finding, that MPS
used the trade secrets, is supported by the evidence. O2 Micro
opposes the motion on procedural and substantive grounds. In a
separately filed motion, MPS further requests that, as to the
patent issues, the Court treat the jury verdict as advisory. O2
Micro also opposes that motion.
The motions for injunctive relief and exemplary damages and for
judgment as a matter of law were heard on September 9, 2005. MPS'
motion requesting that the jury verdict, in part, be treated as
advisory was submitted on the papers. On September 20, 2005, the
Court heard additional oral testimony regarding inequitable
conduct and reasonable royalty issues. Paul Meyer, O2 Micro's
damages expert, and James Moyer, one of the inventors of the
patents at issue, testified. Having considered all of the papers
filed by the parties, oral argument on the motions and evidence
presented, the Court finds that O2 Micro is not entitled to an
injunction. The Court denies MPS' motion for judgment as a matter
of law with respect to use, but grants MPS judgment as a matter
of law with respect to the unjust enrichment damages award. The
Court grants O2 Micro a reasonable royalty and exemplary damages,
but denies O2 Micro's request for UTSA attorneys' fees. The Court
finds and concludes that MPS did not engage in inequitable
conduct. O2 Micro has failed to prove by clear and convincing
evidence that the article in question was material and that MPS
acted with intent to deceive. The Court also finds that this
patent case is not extraordinary and thus that O2 Micro is not
entitled to attorneys' fees. The Court denies MPS' request that
the Court treat the jury verdict regarding patent issues as
In November, 2000, O2 Micro brought suit against MPS for a
declaratory judgment that MPS' U.S. Patent Nos. 6,144,814,
Apparatus for Controlling a Discharge Lamp in a Backlighted
Display (the '814 patent), and 6,316,881, Method and Apparatus
for Controlling a Discharge Lamp in a Backlighted Display (the
'881 patent), were invalid and not infringed. The '881 patent,
filed on March 17, 2000, and issued on November 13, 2001, is a
continuation of the '814 patent, filed on December 11, 1998, and
issued on September 5, 2000. The patents relate to methods and
apparatuses for supplying electrical power for driving a
discharge lamp, such as a cold cathode fluorescent lamp (CCFL)
used to backlight a liquid crystal display (LCD) panel. The
claimed methods and apparatuses control the supply of power to
the CCFL by controlling the alternating current (AC) signal that
is applied to the CCFL from a range of direct current (DC)
MPS asserted counterclaims against O2 Micro for infringement of its patents. O2 Micro later filed a new lawsuit against MPS,
alleging misappropriation of its trade secrets. The Court
consolidated the two cases. Following a motion to dismiss, claim
construction, motions for summary judgment and discovery
disputes, the case proceeded to a jury trial on June 27, 2005.
The equitable issues were reserved for trial to the Court.
On July 18, 2005, after an eleven-day trial, the jury returned
a verdict. The jury found that O2 Micro's Trade Secret Claims 1
through 11 were trade secrets and that Trade Secrets 1 and 8
through 11 were misappropriated by MPS, who the jury determined
acted willfully and with malice. The jury awarded O2 Micro $12
million in unjust enrichment damages for MPS' misappropriation of
Trade Secret Claim 1, the transformer-related claim, but awarded
no damages for MPS' misappropriation of Trade Secrets 8 through
11. The jury further found that O2 Micro did not infringe the
asserted claims of MPS' '814 patent or its '881 patent and that
all asserted claims were invalid as anticipated by the prior art.
California Civil Code section 3426.2(a) provides, "Actual or
threatened misappropriation may be enjoined." O2 Micro
acknowledges that an injunction based on a trade secret no longer
secret is generally not permitted under the UTSA. But an
"injunction may be continued for an additional period of time in
order to eliminate commercial advantage that otherwise would be
derived from the misappropriation." Cal. Civ. Code § 3426.2(a).
Thus, O2 Micro requests that the Court order a lead-time or "head start" injunction to eliminate MPS' commercial advantage, and O2
Micro's commercial disadvantage, resulting from the head start
MPS obtained through its misappropriation. See Lamb-Weston, Inc.
v. McCain Foods, Ltd., 941 F.2d 970, 974 (9th Cir. 1991) (noting
that a trade secret injunction "seeks to protect the secrecy of
misappropriated information and to eliminate any unfair head
start the defendant may have gained"). O2 Micro requests a
"production injunction," or, in the alternative, an "use
O2 Micro's requested production injunction would prohibit MPS
from "manufacturing, assembling, producing, distributing,
offering for distribution, circulating, selling, offering for
sale, advertising, marketing, importing, promoting, disclosing or
using" numerous listed MPS products and "any other product that
satisfies sufficient requirements to practice Trade Secret 1, and
any boards containing those products." O2 Micro's [Proposed]
Order Re Motion for Perm. Inj. at 2:9-15. But the two cases it
cites, General Electric Co. v. Sung, 843 F. Supp. 776, 779-780
(D. Mass. 1994), and Viscofan, S.A. v. U.S. International Trade
Commission, 787 F.2d 544 (Fed. Cir. 1986), do not support
imposing such an extreme injunction in this case. As noted by the
court in Viscofan, normally the misappropriator is only barred
from using the particular secrets he or she has taken.
787 F.2d at 449. Courts impose production injunctions only in
circumstances "where the misappropriated trade secrets are
`inextricably connected' to the defendant's manufacture of the
product" and thus a "use injunction is ineffective because the
misappropriation cannot be relied upon to `unlearn' or abandon
the misappropriated technology." General Elec. Co., 843 F. Supp. at 780.
O2 Micro provides no evidence of "inextricable connection" that
would render a use injunction ineffective. Nonetheless, it argues
that a use injunction would be ineffective in eliminating the
competitive advantage MPS gained by its misappropriation because
only a production injunction can restore the playing field to a
fully level position. But O2 Micro fails to show any competitive
advantage, much less any advantage that can be eliminated only
through the drastic measure of a production injunction. The only
evidence O2 Micro cites to support the alleged competitive
advantage that MPS gained at O2 Micro's expense is testimony that
MPS was able to fix its problem in 2000, which allegedly resulted
in O2 Micro losing hundreds of thousands of potential sales for
its OZ960 product. But this evidence does not prove that O2 Micro
lost significant business opportunities because of MPS'
misappropriation. Nor does it prove that MPS gained a competitive
advantage through its misappropriation. The Court finds that O2
Micro provides no evidence to justify a production injunction.
O2 Micro's requested use injunction would prohibit MPS from
using any aspect of Trade Secret 1 for a six-month period from
the date the injunction is entered; O2 Micro claims that it took
O2 Micro approximately six months to develop the trade secret.
But, as noted by MPS, and not denied by O2 Micro, the information
at issue has long been non-secret. In response, O2 Micro argues
that MPS' six-month head start continues to this day and has not
been eliminated by the passage of time. Again, however, O2 Micro provides no facts to support its argument that it continues to be
prejudiced by MPS' misappropriation.
Because the trade secrets at issue have been disclosed and
there is no evidence that a commercial advantage derived from the
misappropriation exists, the Court denies O2 Micro's motion for
an use injunction.
II. Judgment as a Matter of Law
A motion for judgment as a matter of law after the verdict
renews the moving party's prior Rule 50(a) motion for judgment as
a matter of law at the close of all the evidence. Fed.R.Civ.P.
50(b). Judgment as a matter of law after the verdict may be
granted only when the evidence and its inferences, construed in
the light most favorable to the non-moving party, permits only
one reasonable conclusion as to the verdict. Where there is
sufficient conflicting evidence, or if reasonable minds could
differ over the verdict, judgment after the verdict is improper.
See, e.g., Kern v. Levolor Lorentzen, Inc., 899 F.2d 772, 775
(9th Cir. 1990); Air-Sea Forwarders, Inc. v. Air Asia Co.,
880 F.2d 176, 181 (9th Cir. 1989); Peterson v. Kennedy,
771 F.2d 1244, 1252 (9th Cir. 1985); L.A. Mem'l Coliseum Comm'n v. NFL,
726 F.2d 1381, 1387 (9th Cir. 1984).
Before reaching the substance of MPS' motion, O2 Micro argues
that MPS' renewed motion for judgment as a matter of law is
untimely under Federal Rule of Civil Procedure 50(b). See
Fed.R.Civ.P. 50(b) ("movant may renew its request for judgment as a
matter of law by filing a motion no later than 10 days after
entry of judgment"). O2 Micro focuses on the phrase: "no later than 10
days after entry of judgment," arguing that Rule 50(b) authorizes
only post-judgment motions for judgment as a matter of law.
MPS correctly notes, however, that Rule 50(b) does not bar MPS
from filing its renewed motion at this time. O2 Micro points to
no other rule or case law that prohibits MPS from filing its
motion for judgment as a matter of law before judgment.
O2 Micro further argues that this motion violates the Court's
instruction that JMOL matters should be addressed "separate and
apart" from equitable matters still pending, and only after the
equitable matters were decided. As correctly noted by MPS,
however, the issues presented in this motion and O2 Micro's
motion for exemplary damages and injunctive relief are
intertwined. The Court considers the issues together.
O2 Micro further argues that the Court should not consider MPS'
motion on its merits because MPS waived its rights to renew its
motion for judgment as a matter of law. O2 Micro cites Ninth
Circuit precedent holding that the requirement to move for a
judgment as a matter of law at the close of evidence is strictly
construed in this circuit; "substantial compliance is not
enough." Janes v. Wal-Mart Stores Inc., 279 F.3d 883, 887 (9th
MPS does not deny that it did not make its motion at the close
of all the evidence. Instead, MPS notes that, like other
circuits, the Ninth Circuit makes an exception to this
requirement in cases where an earlier motion has been taken under
advisement by the trial judge. Farley Trans. Co., Inc. v. Santa
Fe Trail Trans. Co., 786 F.2d 1342, 1346 (9th Cir. 1986).*fn1 As explained by the
The trial court's reservation of a ruling on a motion
for a directed verdict made before the close of all
the evidence maintains the motion as a continuing
objection to the sufficiency of the evidence,
provides notice to the opposing party of the
challenge, and constitutes a judicial indication that
renewal of the motion is not necessary to preserve
the moving party's rights.
Id. at 1346-47. Here, MPS filed its motion for judgment as a
matter of law on July 11, 2005, before the close of all the
evidence on July 14, 2005. Therefore, MPS did not waive its right
to bring this motion.
MPS also notes that the Court instructed the parties not to
make oral motions for judgment as a matter of law before the jury
and that when MPS and O2 Micro rested their cases the jury was
present. See Trial Tr. 1954:3-15.*fn2 MPS argues that the
Court should not penalize it for following the Court's
instructions and filing its motion for judgment as a matter of
law the same day as the close of all the evidence.*fn3 The
Court will not.
MPS argues that O2 Micro failed to present any evidence that
MPS put any of its claimed trade secrets to commercial use. MPS
contends that, because O2 Micro failed to prove use, O2 Micro cannot recover damages or injunctive relief.
MPS illustrates weaknesses in O2 Micro's trade secrets case.
But a judgment as a matter of law is not about weaknesses, or
even gaps, in a party's case. As noted by O2 Micro, MPS does not
address, or even acknowledge, the high legal standard this Court
must apply to this motion. In the Ninth Circuit, the standard for
judgment as a matter of law, like the standard for summary
judgment, requires that the Court find that reasonable minds
could come to only one conclusion with respect to the elements of
the verdict. See, e.g., Kendall Jackson Winery, Ltd. v. E. &
J. Gallo Winery, 150 F.3d 1042 (9th Cir. 1998). O2 Micro
presented sufficient conflicting evidence, inferential evidence,
and questions regarding credibility that a reasonable juror could
have concluded that MPS used the trade secrets at issue.
1. Definition of Use
Before discussing the evidence presented at trial, the parties
dispute the definition of "use." The parties agree that use does
not mean mere possession of a trade secret or mere internal
discussion within the company of a trade secret; the parties
disagree over whether internal experimentation can constitute
use. Based on the California and federal cases presented by the
parties, the Court concludes that internal experimentation with
trade secret information not resulting in a market product can
constitute use. In AT&T Communications v. Pacific Bell,
1998 U.S. Dist. LEXIS 13459, at *8 (N.D. Cal. 1998), the court
rejected the defendant's argument that, for misappropriation and
use to occur under the California UTSA, the trade secret
information must be sold to the plaintiff's competitors or used to compete directly. As recently
stated in PMC, Inc. v. Kadisha, 78 Cal. App. 4th 1368, 1383
(2000), "Employing the confidential information in manufacturing,
production, research or development, marketing goods that embody
the trade secret, or soliciting customers through the use of
trade secret information, all constitute use."
2. Trade Secret 1, the Transformer Claim
MPS argues that Trade Secret 1 consists of an O2 Micro chip
along with "the combination of seven Sumida transformer
features." If by "combination" MPS means a combination of all
seven features, however, it is wrong. O2 Micro correctly notes
that, according to the definition given to the jurors, Trade
Secret 1 consists of various permutations of those seven
features. See List of O2 Micro's Trade Secret Claims ("1. O2
Micro's design and selection of a transformer that has one or
more of the following characteristics with an inverter model
that includes a OZ960, OZ961, OZ969A, OZ970 or OZ9RZ controller
. . .") (emphasis added). Thus, each of items d though g may be
satisfied if in combination with "one or more" of items a through
To show use, MPS contends, O2 Micro would have to prove that
MPS either used an O2 Micro chip or altered an MPS chip to
incorporate O2 Micro chip features and then (1) used a
transformer with the seven allegedly secret features with such a
chip on a demo board shown to at least one customer; (2)
recommended that an MPS customer use such a chip along with a
transformer with the seven features; (3) recommended that an end
customer ask the customer's own suppliers to use such a chip
along with a transformer with the seven features; or (4) recommended that a transformer
manufacturer alter the manufacturer's own transformer design to
use the seven features and that the manufacturer then try to sell
that transformer alongside such a chip.
O2 Micro does not argue that it showed any of these four
scenarios. Instead, it correctly notes that MPS' definitions of
"use" and Trade Secret 1 are overly restrictive, as discussed
above. To show use in the first scenario, O2 Micro is not
required to prove that MPS showed a demo board to at least one
customer. Use for research and development constitutes use. And,
not all seven features, or characteristics, must be present at
the same time.
The Court's finding that the evidence presented at trial was
sufficient to permit a rational jury to infer that MPS used, and
thus misappropriated, Trade Secret 1, is based on the following.
In September, 2000, an MPS vice-president forwarded an OZ960 data
sheet to MPS engineers James Moyer and Paul Ueunten; the data
sheet was labeled confidential. Trial Exs. 214, 215; Trial Tr.
1338, 1339-1440. Mr. Ueunten testified that after looking at the
transformer network on the data sheet he concluded that, other
than an extra capacitor, O2 Micro's transformer network,
including the transformer, could be used with a MPS chip. Trial
Tr. 1340:3-7. Approximately a month later, Mr. Ueunten compared
the waveforms from the confidential OZ960 data sheet with
waveforms from an O2 Micro's OZ960 demo board provided by an
Ambit employee. Trial Ex. 222; Trial Tr. 1340:12-1341:5. Mr.
Ueunten concluded that the transformer "must be the key to
efficiency" of the OZ960 and asked if MPS could "get a hold of the inventor and/or its transformer."
Trial Ex. 222; Trial Tr. 1341:14-19. Soon, the "general
consensus" at MPS was that "MPS' transformer design needs a
thorough review and is likely the quickest way to improve our
circuit efficiency." Trial Ex. 125; Trial Tr. 525:3-12.
MPS obtained another OZ960 demo board in October, 2000 from
Sumida. Although MPS contends that this board was a production
board and not a demo board, Dr. Lin, O2 Micro's Executive Vice
President in Engineering, testified that the board MPS obtained
and analyzed was a demo board. Trial Tr. 1882:16-1883:25. Mr.
Ueunten analyzed the transformer on this board. Trial Tr.
1341-32. And that same month, MPS started listing on its bills of
materials for its customers the model of the transformer that O2
Micro was using. MPS' Mr. Moyer testified that this list was not
"a recommendation necessarily." Trial Ex. 4189; Trial Tr.
663:5-19 (emphasis added). In June, 2002, MPS still listed that
model transformer in its bills of materials it gave to its
customers. Trial Ex. 4193.
In November, 2000, Mr. Moyer analyzed the demo board that MPS
obtained from Sumida, and sent an e-mail noting the "dramatic"
difference between the transformers on the O2 Micro and MPS
boards. Trial Exs. 227, 249. Simon Tsai was instructed to perform
further analysis on the OZ960 module, such as determining wire
size and secondary bays. Trial Exs. 227, 249; Trial Tr. 656-57,
659:10-660:10. Mr. Tsai began "experimenting" and changing the
thickness of the wires, altering the turns ratio in the MPS
transformer's windings and filling in the bays on the
transformer's bobbins. Trial Tr. 1507:17-25; 1509:1-7. Mr. Tsai
testified that he "experimented" with MPS' transformer, aiming to improve the
performance of the transformer, in response to customer
complaints and Mr. Moyer's instructions. Trial Tr. 1508:11-25;
1509:12-16; 1510:6-16. From this evidence, the jury reasonably
could have concluded that MPS engaged in more than "internal
discussions" of the transformer design; the jury reasonably could
have concluded that MPS used the O2 Micro trade secret to improve
the transformers used with MPS controllers, or, at the very
least, that MPS used the trade secret for research or development
As noted repeatedly by MPS, however, use of the Sumida
transformer by itself does not show use of Trade Secret 1. Any
violation would have to include an O2 Micro controller, as well
as a showing of "one or more" of the seven characteristics. MPS
witness Kip Brown, however, testified that when testing an MPS
demo board, he found that the board included a transformer
incorporating six of the seven characteristics from O2 Micro's
Trade Secret 1. Trial Tr. 1387:12-1390:21; 1411:8-14. Mr. Brown
testified that those six characteristics could not have been
trade secrets because MPS knew about them. Trial Tr. 1391:19-25.
Thus, as O2 Micro noted at trial, the question is whether the
board examined by Mr. Brown was created before or after MPS got
access to the O2 Micro boards. Trial Tr. 1411:15-17. MPS argues
that this board contained chips from early 2000, which was before
it received O2 Micro's data sheet or O2 Micro's demo boards. But,
as O2 Micro correctly notes, the jury reasonably could have
believed Mr. Brown's testimony as to finding six out of the seven
characteristics and disbelieved Mr. Brown's testimony as to
whether the six characteristics were secret; the jury reasonably could
have believed that the demo board examined by Mr. Brown was made
after MPS acquired O2 Micro's data sheet and demo board. Mr.
Brown admitted that his conclusion that the six characteristics
he found were not secrets was based on information he received
from MPS employee Mr. Ueunten. Trial Tr. 1411:24-1412:1;
1412:15-18; 1414:24-1415:8. His belief that MPS' board was
created before MPS got access to O2 Micro's board was based on
information received from MPS employees, particularly Mr.
Ueunten, and dates that were handwritten by Mr. Ueunten. Trial
Tr. 1411:24-1412:18. The jury reasonably could have disbelieved
Mr. Ueunten's testimony, and found him not to be credible,
because if MPS had already arrived at the same design solution as
O2 Micro had, this likely would have been reflected in MPS'
e-mails presented to the jury. See Trial Exs. 227, 249. It was
not. Instead, the e-mails discuss the "dramatic" differences
between MPS' transformer and O2 Micro's transformer. Id.
MPS argues that even if the six characteristics are present, O2
Micro is trying to elude Trade Secret 1's required connection
with an O2 Micro's chip. The jury, however, reasonably could have
combined the testimony of Mr. Brown and other witnesses to infer
that the MPS demo board that employed six of the seven
characteristics was based on MPS' analysis of the demo boards
with O2 Micro chips.
MPS also argues that O2 Micro admitted that various of the
transformer characteristics, such as wire size, were not secret.
The jury, however, could have reasonably concluded that the combination of the different characteristics was the trade
secret. The jury was instructed that:
Combinations of public information from a variety of
different sources when combined in a novel way can be
a trade secret. It does not matter if a portion of
the trade secret is generally known, or even that
every individual portion of the trade secret is
generally known, as long as the combination of all
such information is not generally known.
Final Jury Instructions at 8:17-23.
3. Trade Secret 8
Trade Secret 8 relates to information about cost and
configuration that is found in O2 Micro data sheets and
demonstration boards. MPS argues that O2 Micro never showed that
MPS made a sale as a result of any claimed secret information
relating to cost. The jury, however, could have reasonably
concluded that MPS used this confidential information, on the
basis of e-mails from MPS employee Fiona Wang and testimony from
MPS vice-president Maurice Sciammas. In one e-mail, Ms. Wang, who
is in charge of finance and customer service in Taiwan, stated
that Mr. Tsai used O2 Micro's data sheets to determine or verify
component count and solution cost information for O2 Micro. Trial
Ex. 395. In another e-mail, Ms. Wang attached a price analysis of
O2 Micro's OZ969A versus MPS solutions. Trial Ex. 440. Mr.
Sciammas testified that this information was valuable to MPS.
Trial Tr. 867:16-868:12. MPS asserts that this evidence does not
point to any external use or disclosure. It does not have to:
research and development constitute use.
4. Trade Secret 9
Trade Secret 9 relates to the desirability and benefits of a controller that O2 Micro was developing. As noted by MPS, O2
Micro's expert, Mr. Meyer, stated that he was told by O2 Micro's
counsel or Dr. Lin that MPS did not practice Trade Secret 9.
Trial Tr. 1254:25-1255:10; 1256:1-6. But that testimony is not
enough for the Court to conclude that reasonable minds could have
come to only the single conclusion that Trade Secret 9 was not
used. Testimony was also presented that Trade Secret 9 was used
to "evaluate" whether MPS should make a similar product. Trial
Tr. 873:10-76:7. The jury reasonably could have concluded that
although MPS did not affirmatively use this trade secret in its
product, as Mr. Meyer testified he was told, it did use this
information as part of research and development in deciding not
to enter a market in which it stood no chance of profiting.
5. Trade Secret 10
Trade Secret 10 is similar to Trade Secret 8, but relates
specifically to the solution cost and configuration information
for the OZ9RR part. MPS again argues that O2 Micro never showed
that MPS actually made a sale as a result of any claimed secret
information relating to cost. The jury, however, could infer that
MPS used this information to compare its product with OZR99 for
use in marketing a proposed new product.
6. Trade Secret 11
Trade Secret 11 relates to O2 Micro's method of using
multiplexing functions in the pins of the OZ9RR inverter
controllers so that one pin of the OZ9RR inverter controller may
support multiple functions co-existing in an inverter
application. MPS notes that Mr. Meyer stated that he was told by
O2 Micro's counsel or Dr. Lin that MPS did not practice Trade Secret 11. Trial Tr.
1254:25-1255:10; 1256:1-6. But O2 Micro presented evidence from
which the jury could infer that MPS used this information in
implementing its own part, even though the functions that the MPS
part multiplexed were different then the functions multiplexed by
O2 Micro. Trial Tr. 781:18-782:16. The jury was entitled to
discount Mr. Meyer's testimony and to rely upon other evidence;
thus, the evidence does not point to the single conclusion that
MPS did not use Trade Secret 11.
MPS argues that, distinct from the question of use, the jury's
$12 million unjust enrichment award for Trade Secret 1, the
transformer-related trade secret, was not based upon evidence
from which a reasonable jury could have made that award. MPS
correctly notes that O2 Micro failed to present evidence of
unjust enrichment damages that was specific to Trade Secret 1.
Instead, O2 Micro's damages expert, Mr. Meyer, provided the jury
with a damages calculation based on an assumption that all of the
trade secrets were misappropriated. Mr. Meyer testified that MPS
was unjustly enriched by approximately $16 million based on the
misappropriation of all of the trade secrets. Trial Tr.
1254:5-12. The jury, however, found that only five of the eleven
trade secrets were misappropriated, and that only the
misappropriation of one of them resulted in MPS being unjustly
The Court warned O2 Micro of the dangers of bundling all of its
alleged trade secrets damages together:
[I]t seems to me that if Meyer is saying the damages are X dollars if they stole all our trade secrets, he
can say that. But if the jury finds that he only
stole 11 of them, then his testimony would be
stricken and you would have no testimony because
there'd be no basis upon which a jury could decide
what the damages were from the theft of 11 secrets
when they've heard testimony only about what the
damages are from 12 secrets unless somehow he can say
that no matter how many secrets are stolen, the same
damages are accrued.
Transcript of Jan. 28, 2005 Pretrial Conference, 41:13-22. In the
same pretrial conference, the Court again told O2 Micro that "you
can have that kind of damage evidence if you want to. I'm just
warning you that if you do and you don't win on all 12 of your
trade secrets, you'll have no damages." Id. at 43:22-25. Then
in the Court's subsequent Pretrial Order, the Court ruled that
"if O2 Micro fails to prove at trial any of the hypotheses upon
which Meyer relies, including use, his expert testimony will be
stricken as irrelevant." Order After Jan. 28, 2005 Pretrial
Conference at 5:3-6.
Nonetheless, O2 Micro presented evidence of damages based on
misappropriation of all trade secrets, but was unable to convince
the jury that all trade secrets were misappropriated. O2 Micro
now wrongly contends that the damages award is supported by the
Citing Morlife, Inc. v. Perry, 56 Cal. App. 4th 1514 (1997),
O2 Micro states that, in trade secret claims, damages need not be
calculated with absolute precision. Damages do, however, need to
rest on a "reasonable basis." See, e.g., Tri-Tron Int'l v.
Velto, 525 F.2d 432, 436 (9th Cir. 1975); American Loan Corp.
v. California Commercial Corp., 211 Cal. App. 2d 515, 524
(1963). Here, the Court finds there is no reasonable basis. O2 Micro asserts that Dr. Lin, as an officer of O2 Micro, can
testify concerning the value of O2 Micro's assets, including its
trade secrets. Trial Tr. 159. O2 Micro argues that the jury
therefore could have relied on Dr. Lin's testimony to determine
that the value of Trade Secret 1 was seventy-five percent of the
value of all asserted trade secrets, which would explain why the
jury awarded $12 million in unjust enrichment damages for
misappropriation of Trade Secret 1, and not the entire $16
million discussed by Mr. Meyer. This argument, however, fails:
Dr. Lin never testified that Trade Secret 1 was worth
seventy-five to ninety percent of the monetary value of the all
other trade secrets.
When counsel for O2 Micro asked Dr. Lin what value he would put
on the transformer information in comparison to the other alleged
trade secrets, MPS' counsel objected as calling for expert
testimony. After O2 Micro's counsel assured the Court that it was
looking for "just his assessment of importance, not a dollar
value," Dr. Lin responded: "Transformer could be the heart of the
inverter module. If you want to quantify it, could be 80 percent,
90 percent, 75 percent? Could be up there." Trial Tr. 284: 1-12.
Dr. Lin's testimony does not provide a reasonable basis for the
jury to apportion damages. He did not state that Trade Secret 1
is worth seventy-five to ninety percent of monetary value of all
the trade secrets, nor can that be inferred from his testimony.
Even if Dr. Lin stated that Trade Secret 1 was worth seventy-five
percent of all the trade secrets, that describes only what it is
worth to O2 Micro. It does not provide a reasonable basis for the
jury to determine the amount that MPS was unjustly enriched based
upon its misappropriation of Trade Secret 1.
The additional testimony of other witnesses regarding the great
importance of transformers also fails to provide the necessary
reasonable basis for the jury to apportion unjust enrichment
damages. MPS employee Mr. Shannon testified that the transformer
is the "single largest component in an inverter," and that
getting a good transformer design was important to MPS and its
customers. That testimony, even combined with similar testimony
from other witnesses, does not provide a reasonable basis for the
jury to award seventy-five percent of the amount of unjust
enrichment damages for all trade secrets, when it found that MPS
misappropriated only five trade secrets and awarded unjust
enrichment damages only for Trade Secret 1.
After the jury concluded that MPS did not misappropriate all of
O2 Micro's trade secrets, Mr. Meyer's expert testimony regarding
damages for misappropriation of all trade secret was useless to
the jury. The jury was then left without sufficient evidence, or
a reasonable basis, to determine the unjust enrichment damages.
Thus, the jury's award of unjust enrichment damages was based on
speculation and guesswork, not on evidence. The Court grants MPS'
motion for judgment as a matter of law that O2 Micro failed to
prove unjust enrichment damages for misappropriation of Trade
III. Reasonable Royalty
In light of MPS' challenge to the jury's damages award, O2
Micro requests a reasonable royalty should the Court determine
that unjust enrichment was not proved. California Civil Code §
3426.3(b) ("If neither damages nor unjust enrichment caused by misappropriation are provable, the court may order payment of a
reasonable royalty for no longer than the period of time the use
could have been prohibited."). Neither unjust enrichment nor
damages have been proven and the Court will grant O2 Micro a
MPS argues that there is no basis for awarding a reasonable
royalty because it did not use O2 Micro's trade secrets; if the
Court does award a reasonable royalty, MPS asserts that the
amount should not be greater than $128,017.03. But the Court has
already rejected MPS' argument that there was no use, and thus
rejects MPS' argument that there can be no reasonable royalty
because MPS did not use the trade secrets. The Court also
rejects, in part, MPS' argument that O2 Micro's reasonable
royalty estimate is plagued with the same problem as its unjust
enrichment damages award, i.e., it is based on misappropriation
of all the trade secrets and not just the five found by the jury.
Mr. Meyer explained during the bench trial, and noted in his
November 5, 2004 expert damages report, that he determined that
the parties in a hypothetical negotiation would agree to a
$900,000 paid-up reasonable royalty for any one group of trade
secrets; he stated that the transformer trade secrets would be an
example of a group of trade secrets.*fn4
The Court has reviewed the factors relevant to a reasonable
royalty determination. See Georgia-Pacific v. United States
Plywood Corp., 318 F. Supp. 1116, 1120 (S.D.N.Y. 1970),
modified and aff'd, 446 F.2d 295 (2d Cir. 1971). And the Court accepts the analysis
of those factors set forth by Mr. Meyer in his explanation of the
$900,000 reasonable royalty figure.
Mr. Meyer posits a "paid-up royalty," a one-time payment that
allows the licensee to practice the trade secret in the future
without making any more payments. As correctly noted by MPS, the
UTSA provides for a reasonable royalty "for no longer than the
period of time the use could have been prohibited." Cal. Civ.
Code § 3426.3(b). Thus, MPS argues that, because the trade secret
became public six months after the hypothetical negotiation, it
should only have to pay a fourth of the $900,000, which Mr. Meyer
calculated based on a two-year benefit to MPS. But a paid-up
royalty, unlike a running royalty, cannot be divided. Parties
often enter into an agreement not knowing when the trade secret
will become public; it is something the parties consider, and
sometimes risk, during their negotiations. Bench Trial Tr.
77:8-19; 80:17-81:14. MPS provides no evidence that it would not
have entered into this hypothetical agreement, or would have paid
far less, because it knew that the trade secret would soon become
public. Nor does MPS cite a case holding that a paid-up
reasonable royalty should not be imposed, or must be divided, if
the trade secret becomes public shortly after the hypothetical
negotiation. In sum, the $900,000 reasonable royalty does not
require MPS to pay for longer than the period of time the use
could have been prohibited; instead, it requires MPS to make a
one-time payment while the use was prohibited. Therefore, the
Court grants O2 Micro a reasonable royalty in the amount of
$900,000. IV. Exemplary Damages
As noted by O2 Micro, because the jury found that MPS'
misappropriations were willful and malicious, the Court has the
discretion to award exemplary damages. Cal. Civ. Code § 3246.3(c)
("If willful and malicious misappropriation exists, the court may
award exemplary damages in an amount not exceeding twice any
award" of reasonable royalty, or compensatory or unjust
O2 Micro argues that the maximum amount of exemplary damages
should be awarded because the reprehensibility of MPS' conduct is
high; the harm to O2 Micro was great; MPS' financial condition is
such that enhancement of damages is appropriate; and an award of
exemplary damages will punish and deter MPS from future
misconduct. MPS fails to address O2 Micro's arguments directly.
Instead, MPS argues that the correct UTSA standard for
determining exemplary damages follows patent law. See UTSA § 3
Commissioners' Comment ("This provision follows federal patent
law in leaving discretionary trebling to the judge."). But, as O2
Micro correctly notes, the Commissioners' Comments only state
that, as in patent law, exemplary damages are for the judge, not
jury, to determine. The comments do not state that patent
decisions and standards apply to exemplary damages under the
UTSA; nor do the comments support following patent law when there
are California cases on point. MPS ignores relevant California
cases. It cites a Kansas District Court trade secrets case,
Biocore, Inc. v. Khosrowshahi, 2004 WL 303194 (D. Kan. Feb. 2,
2004), in which the court determined exemplary damages under a
nine factor test commonly considered in patent cases, and a Ninth
Circuit case, Yeti by Molly, Ltd. v. Deckers Outdoor Corp.,
259 F.3d 1101 (9th Cir. 2001), that involved the Montana UTSA. Neither
case addressed the California UTSA.
Unlike MPS, O2 Micro cites California cases to support its
argument that the proper factors for this Court to consider are
the three announced by the California Supreme Court decades ago
and reiterated by the California Supreme Court more recently in
Adams v. Murakami, 54 Cal.3d 105 (1991). Those factors are (1)
the nature of the misconduct; (2) amount of compensatory damages;
and (3) the defendant's financial condition. Neal v. Farmers
Ins. Exchange, 21 Cal.3d 910, 928 (1978); Adams,
54 Cal.3d at 111. In Cloud & Assocation, Inc. v. Mikesell,
69 Cal. App. 4th 1141 (1999), the court reversed an award for punitive damages
under California Civil Code section 3426.3(c) because there was
no evidence of the defendant's financial condition as required by
Adams and Neal. 69 Cal. App. 4th at 1151-53. The court
rejected the plaintiff's argument that under the UTSA the
financial condition of the defendant is less of a concern than in
other punitive damage cases, and noted that another court had
previously held "the Adams rule applicable to a case in which
the remedies of the UTSA were applied." Id. at 1151 (citing
Vacco Ind., Inc. v. Van Den Berg, 5 Cal. App. 4th 34, 46 n. 11
(1992)). Thus, in exercising its discretion the Court is guided
by the three factors found in Neal and Adams.
The jury determined that MPS acted willfully and maliciously.
MPS' financial condition is such that it has the ability to pay
the maximum in exemplary damages: $1,800,000.*fn5 See Cloud &
Assoc., 69 Cal. App. 4th at 1152.
It is only the second Adams and Neal factor, compensatory
damages, that does not point strongly in the direction of
awarding the maximum possible amount in exemplary damages.
Adams, 54 Cal. 3d at 110; Neal, 21 Cal. 3d at 928. Here, the
jury found no compensatory damages. O2 Micro glosses over this
problem by focusing, not on compensatory damages, but rather on
the significant harm O2 Micro suffered from MPS'
misappropriation. O2 Micro argues that a significant portion of
MPS' unjust enrichment was at its expense and that the evidence
shows that it lost significant business opportunities because of
MPS' misappropriation. But the evidence O2 Micro offers is
unconvincing, consisting mostly of the inquiries O2 Micro
received from customers in September, 2000, regarding its OZ960
product, which inquiries dissipated in December, 2000, after MPS
made improvements in its transformer allegedly based on its
access to O2 Micro's confidential information and confidential
demo board. This evidence does not prove that O2 Micro lost
significant business opportunities because of MPS'
misappropriation. The fact remains that the jury found no
compensatory damages. There is no rule, however, mandating that a party show that all
three factors point strongly in favor of an exemplary damage
award. The decision in Adams focused almost exclusively on the
financial condition of the defendant in reviewing whether the
court abused its discretion in granting exemplary damages. O2
Micro should not be denied exemplary damages because it fails to
show compensatory damages, especially since the UTSA explicitly
authorizes exemplary damages awards of not more than twice the
award of a reasonable royalty or unjust enrichment damages.
Therefore, the Court determines that, based on MPS' financial
condition and the jury's finding of willfulness and
maliciousness, exemplary damages are appropriate. The Court
awards $1,800,000, twice the amount of the reasonable royalty.
V. Attorneys' Fees
O2 Micro argues that because the jury found that MPS'
misappropriation was willful and malicious, it is entitled to
attorneys' fees under the California UTSA. California Civil Code
section 3426.4 provides, "If a claim of misappropriation is made
in bad faith, a motion to terminate an injunction is made or
resisted in bad faith, or willful and malicious misappropriation
exists, the court may award reasonable attorney's fees to the
prevailing party." The UTSA does not define bad faith. As noted
in Gemini Aluminum Corp. v. California Custom Shapes, Inc.,
95 Cal. App. 4th 1249, 1261 (2002), it is generally recognized that
the purpose of the statute is to deter specious misappropriation
actions. In order to be deterrable, a trade secret misappropriation claim must involve
conduct more culpable than negligence; it must be "at least
reckless or grossly negligent, if not intentional and willful."
Stilwell Dev., Inc. v. Chen, 11 U.S.P.Q. 2d (BNA) 1328, 1330
(C.D. Cal. 1989).
But, as noted by MPS, attorneys' fees are not mandatory even if
the jury finds willful and malicious misappropriation. See Cal.
Civ. Code § 3426.4 ("the court may award reasonable attorney's
fees") (emphasis added). MPS asserts that O2 Micro's frequent
alteration of its trade secret claims weighs against a fee award.
And if the Court considers a fee award, MPS requests a reciprocal
award under section 3426.4 based on the fees it incurred
defending the chip design claims the jury rejected (claims 2-7).
O2 Micro argues that MPS' reciprocal fee request should be denied
because it failed to provide proper notice and because there is
no showing of bad faith on O2 Micro's part.
The Court concludes that, because of the purpose of the
statute, the behavior of the parties during this litigation and
the exemplary damages awarded, neither party will be awarded
attorneys' fees under the California UTSA.
VI. Patent Issues
A. Findings of Fact and Conclusions of Law on Inequitable
O2 Micro asserts that the '814 and '881 patents are
unenforceable based on MPS' inequitable conduct. Patent
applicants and their legal representatives have a duty to prosecute
applications with candor and good faith. Molins PLC v. Textron,
Inc., 48 F.3d 1172, 1178 (Fed. Cir. 1995); 37 C.F.R. § 1.56(a).
O2 Micro contends that MPS breached that duty by failing to
disclose an August, 1994, article by Melvin C. Cosby, Jr. and
R.M. Nelms, entitled "A Resonant Inverter for Electronic Ballast
Applications" (Cosby/Nelms article). Trial Ex. 69.
A breach of the duty to prosecute patents in good faith occurs
when an individual associated with filing and prosecuting a
patent application fails to disclose material information with an
intent to deceive. Union Pac. Res. Co. v. Chesapeake Energy
Corp., 236 F.3d 684, 693 (Fed. Cir. 2001). Proof of inequitable
conduct entails a two-step analysis. The court must first
determine "whether the withheld references satisfy a threshold
level of materiality," and next "whether the applicant's conduct
satisfies a threshold finding of intent to mislead." Halliburton
Co. v. Schlumberger Tech. Corp., 925 F.2d 1435, 1439 (Fed. Cir.
1991). Both materiality and culpable conduct are questions of
fact, and "each must be proved by clear and convincing evidence."
Goodyear Tire & Rubber Co. v. Hercules Tire & Rubber Co.,
162 F.3d 1113, 1122 (Fed. Cir. 1998). Assuming satisfaction of both
thresholds, the court balances materiality and intent to
determine whether the applicant's conduct is so culpable that the
patent should be held to be unenforceable; the "more material the
omission, the less culpable the intent required, and vice versa." Halliburton, 925 F.2d at 1439.
O2 Micro contends that the Cosby/Nelms article was highly
material and that it clearly anticipated and/or rendered obvious
the asserted claims of the '814 and '881 patents. MPS argues that
the article was not material, correctly noting that inventors
have no obligation to disclose otherwise material references if
that information is cumulative or less material than references
already before the patent examiner. Halliburton,
925 F.2d at 1440. MPS further asserts that the Cosby/Nelms article fails to
disclose several elements required to qualify as anticipating
In determining materiality, courts "have consistently referred
to the definition provided in 37 C.F.R. § 1.56." Bruno Indep.
Living Aids, Inc. v. Acorn Mobility Servs., Ltd., 394 F.3d 1348,
1352 (Fed. Cir. 2005). Title 37 C.F.R. section 1.56 provides
information is material to patentability when it is
not cumulative to information already of record or
being made of record in the application, and
(1) It establishes, by itself or in combination with
other information, a prima facie case*fn6 of
unpatentability of a claim; or
(2) It refutes, or is inconsistent with, a position
the applicant takes in: (i) Opposing an argument of unpatentability relied on
by the Office, or
(ii) Asserting an argument of patentability.
Materiality of a reference is analyzed, not in a vacuum, but upon
the overall degree of similarity between the omitted reference
and the claimed invention in light of other prior art before the
examiner. Baxter Int'l, Inc. v. McGaw, Inc., 149 F.3d 1321
1328 (Fed. Cir. 1998).
O2 Micro argues that it established at trial a prima facie
case of unpatentability of both patents based on the Cosby/Nelms
article, which it notes was published more than four years before
the application for the '814 patent, and thus that the article is
highly material. To support this argument, O2 Micro points to Dr.
Erickson's testimony that every element of claim 1*fn7 of
the '881 patent and claim 10*fn8 of the '814 patent was
disclosed by the Cosby/Nelms article. Trial Tr. 949-69, 1905-6. O2 Micro correctly
notes that inequitable conduct with respect to one claim renders
the entire patent unenforceable. Baxter, 149 F.3d at 1332.
MPS responds by detailing the elements of the asserted claims
that the Cosby/Nelms article purportedly does not address,
i.e., optimal power, range of DC voltages and operation of a
First, MPS asserts that nothing in the article discusses the
concept of "optimal power," nor how to achieve it, noting that
all of the claims of the patents require that the optimal amount
of electrical power is provided for driving the load. See '814
patent at 30:1-3 (claims 8 and 10); '881 patent at 28:2-3 (claim
1). To maintain "optimal power" to the CCFL, some method of
regulation or power feedback circuitry is required. Bench Trial
Tr. at 21:24-22:7. But according to the testimony offered by
Professor Nelms, co-author of the article, the circuit that he
described in his article lacked the necessary regulation or power
feedback circuitry: the circuit did not have any feedback
mechanism to vary the brightness or maintain a consistent
brightness once the cathode fluorescent light was turned on.
Trial Tr. 1442:8-25. Professor Nelms testified that his article
did not discuss any type of feedback circuitry. Id. at 1444:1-5. And even O2 Micro's expert
Dr. Erickson stated that the article "mention[ed] a control chip"
that had "circuitry for building a feedback loop included. But
[the article] gives no more detail you know, no details about
what [it] was." Id. at 1041:10-23.
O2 Micro replies that the Cosby/Nelms article does disclose
optimal power, arguing that the trial record shows that the
article discloses a controller that opens and closes the switches
so that the optimal amount of electrical power is provided for
driving the load under a range of voltages provided by the DC
signal. The trial record cited includes the Cosby/Nelms article
and testimony by Dr. Erickson, O2 Micro's expert. Dr. Erickson
testified that the controller discussed in the Cosby/Nelms
article had feedback circuitry "where it can sense what the
output is, like the output voltage of the output current and then
adjust the switching to maintain the output to be a desired
level." Trial Tr. 956:15-957:13. O2 Micro notes that the article
need not use the same words used in the MPS patents to support
anticipation, or materiality. But the testimony of Dr. Erickson
cited by O2 Micro regarding feedback circuitry and "desired
level" is not the same as this Court's definition of the term
"the optimal amount of electrical power is provided for driving
during the load." The Court defined that term as "the least
amount of electrical power that results in a regulated amount of
current to drive the load at the requested level of brightness." November 26, 2001 Order
Construing Disputed Claims and Terms. Dr. Erickson's testimony
does not address minimal power. Nor does the article discuss the
least amount of power resulting in a regulated amount of current
to drive a load at the requested level of brightness.
The second point that MPS asserts is not disclosed in the
Cosby/Nelms article is a "range of DC voltages." MPS notes that
all of the asserted claims require that optimal power be provided
over a range of direct current (DC) voltages. As MPS points out,
there is no mention of a range of DC voltages in the Cosby/Nelms
article. Professor Nelms testified that the direct current used
by the Cosby/Nelms circuit was fixed at a constant eighty-five
volts and that he did not vary the DC voltage or measure any
variance in the eighty-five volts. Trial Tr. 1441:25-1442:8.
O2 Micro, however, replies that the article does disclose a
range of DC voltages and states that Dr. Erickson explained that
the DC source used in the article was derived from a 120 volt
utility line, which inherently varies between 108 and 132 volts.
But that is a misstatement of Dr. Erickson's testimony. Rather,
he stated that "what you get from the utility is isn't always a
perfect 120 volt. It has variation. How much the variation is
depends on where you are in the world, but in the United States,
it's normally plus or minus ten percent." Trial Tr. at
960:25-961:4. This testimony does not explain whether the
variation in question, not disclosed in the article but allegedly inherent
nonetheless, falls within this plus or minus ten percent. And, as
MPS correctly notes, Dr. Erickson's testimony is directly
contradicted by Professor Nelms who stated that the variac he
used in his laboratory did not vary by as much as plus or minus
ten percent once it was set to a fixed voltage and that as far as
he was aware the voltage did not vary. Trial Tr. 1441:15-1442:5.
Third, MPS asserts that the Cosby/Nelms article mentions a
full-bridge circuit only once and that the article does not
contain any enabling disclosure of the operation of a full-bridge
circuit, which is required for all claims. Professor Nelms
testified that, while the article listed full-bridge as one of
the three topologies, they pursued only the half-bridge, and not
the full-bridge or push-pull circuit. Id. at 1440:2-15. O2
Micro replies that it submitted evidence that the Cosby/Nelms
article did disclose and enable a full-bridge and points to Dr.
Erickson's testimony and illustration at trial. Trial Tr.
952:24-955:14; Trial Ex. 5020. O2 Micro also points to the
illustration of a full-bridge in the Cosby thesis. Trial. Ex.
3280. The Cosby thesis, however, contains illustrations of the
three possible inverter topologies: push-pull, full-bridge and
half-bridge. Id. at 4. It states that, although "any of the
above topologies could be made to work" with suitable design,
"the half-bridge was chosen because the high power capabilities
of the full-bridge were not needed, and a transformer is not needed as in the push-pull."
Id. at 5. The Cosby/Nelms article teaches away from using a
transformer. Trial Ex. 69 at 424; Trial Tr. 1443:11-20. The Court
finds that the Cosby/Nelms article does not contain an enabling
disclosure of a full-bridge circuit.
In addition, MPS correctly notes that, although the article
discloses a square wave which O2 Micro states is a symmetrical
wave form, the Cosby/Nelms article does not anticipate claim 10
of '814 patent because the claim element is more than just a
symmetric signal. Rather, it requires a full-bridge operating in
power phases to generate opposite waveforms of a symmetric shape,
which the Cosby/Nelms article does not discuss.
In addition to the fact that the Cosby/Nelms article does not
address essential elements of the asserted claims, as discussed
above, MPS further notes that the face page and file history of
the '814 and '881 patents show that the examiner considered an
extensive collection of prior art. Specifically, the examiner
considered five U.S. patent references and one non-patent
reference for the '814 patent and over forty U.S. patent
references and eleven non-patent references for the '881 patent.
The patents also disclosed prior art, including a half-bridge
inverter circuit and a description of an inductive mode
half-bridge (IMHB) circuit for driving a CCFL. O2 Micro contends
that this prior art of record, however, is not cumulative of, or
more material than, the Cosby/Nelms article. It notes that John Shannon, one of the named
inventors, testified that the disclosure of the IMHB circuit was
not the same as the disclosure in the Cosby/Nelms article. See
Trial Tr. at 621:2-3, 636:15-17. Mr. Shannon, however, also
testified that the functionality of the Cosby/Nelms circuit and
the IMHB circuit was the same and that the two circuits were
"extremely similar." Trial Tr. at 621:6-8, 636:14. O2 Micro
further contends that the Cosby/Nelms article discloses the use
of a full-bridge, unlike the IMHB, which is a half-bridge
circuit. But, as discussed above, the Court finds that the
Cosby/Nelms article does not contain an enabling disclosure of a
O2 Micro provides evidence that the Cosby/Nelms article is
material. But materiality must be proven by clear and convincing
evidence. And in light of Professor Nelm's credible testimony
explaining the article he co-authored, O2 Micro fails to provide
such clear and convincing evidence. Thus, the Court finds that
the Cosby/Nelms article fails to satisfy the threshold level of
materiality. Nonetheless, the Court also considers whether there
is clear and convincing evidence that MPS, and specifically Mr.
Moyer, intended to deceive the PTO.
O2 Micro argues that the Court should find that Mr. Moyer, a
co-inventor of the patents, acted deliberately and with culpable
intent in failing to disclose the Cosby/Nelms article to the
patent examiner. In a case such as this one, involving an omission of an
arguably material reference to the patent examiner, there must be
clear and convincing evidence that the applicant made a
deliberate decision to withhold a known material reference.
Baxter, 149 F.3d at 1329. O2 Micro correctly notes that because
intent can rarely be proven by direct evidence, "intent to
deceive is generally inferred from the facts and circumstances
surrounding a knowing failure to disclose material information."
Bruno Indep. Living, 394 F.3d at 1354. But a finding of
deceptive intent cannot be based on mere negligence, even gross
negligence. Halliburton, 925 F.2d at 1442. And "a mere showing
that references having some degree of materiality were not
disclosed does not establish inequitable conduct." Id. Instead,
a finding of intent to deceive requires that there be conduct
that, when viewed in light of all the evidence, including
evidence indicative of good faith, indicates sufficient
culpability. Hebert v. Lisle Corp., 99 F.3d 1109, 1116 (Fed.
In order to find such culpability, O2 Micro asks the Court to
infer intent based on several facts. First, O2 Micro states that
Mr. Moyer had the article during the prosecution of the '814 and
'881 patents. But even that "fact" is based on inferences that
are not clearly supported by the record. The only fact clearly
supported by the record is that Mr. Moyer had the first page of
the article in his possession in the spring of 2001 when he
handed a folder of documents labeled "CCFL Patent" to his attorneys; in
that folder was the first page of the Cosby/Nelms article. Trial
Exs. 4157, 5003. O2 Micro wants the Court to infer that Mr. Moyer
had the first page of the article during the '814 patent
prosecution because most of the other documents in that folder
relate to the '814 patent. Trial Ex. 5033. But also within the
folder was a February 13, 2001 facsimile discussing document
collection for this lawsuit and a copy of the '814 patent issued
September 5, 2000. Id.
O2 Micro contends that MPS' privilege log also shows that the
front page of the article was in Mr. Moyer's patent prosecution
folder during the '881 and '814 patent. The first page of the
Cosby/Nelms article originally appeared on MPS' privilege log as
"First page of an article given to Jim Moyer by one of MPS'
attorneys during prosecution of patent." Trial Ex. 394, p. 1. But
in an interrogatory, MPS stated that Mr. Moyer never said that
the first page of the article was given to him by a lawyer; he
merely said that he found it in the CCFL Patent folder and did
not recognize it. Trial Ex. 5007, p. 8. Because it was found with
communications between MPS and its patent counsel, Mr. Moyer
thought that "the first page of the Cosby article could have been
given to him by one of MPS' patent prosecution attorneys, but
that he did not actually remember from where he had obtained it."
Id. MPS acknowledges that it made a mistake by including this
page in its privilege log, and the Court does not find, as O2
Micro urges, that MPS is "judicially estopped" from admitting that it made a
mistake. Mr. Moyer testified that he does not remember seeing the
article prior to 2003, and he does not know how or when it came
into his possession. Bench Trial Tr. 16:17-23; 41:10-13.
Other facts O2 Micro lists as supporting a finding of intent to
deceive are (1) that despite its purported high materiality, the
article was not disclosed to the Patent Office; (2) that, as
noted above, the first page was found in a folder labeled "CCFL
Patent" where Mr. Moyer kept other documents from prosecution of
the '814 patent, Bench Trial Tr. 9:3-24; (3) that once the front
page of the Cosby/Nelms article was disclosed MPS attempted to
obstruct and delay its discovery by labeling it a privileged
document; and (4) that Mr. Moyer now "conveniently" can't recall
the underlying events relating to the first page of the
Even assuming that Mr. Moyer had the article in his folder
during the prosecution of both patents, that fact does not
provide clear and convincing evidence of intent to deceive. At
most it illustrates gross negligence on the part of Mr. Moyer and
MPS, and the Court will not infer a higher level of culpability.
See Baxter, 149 F.3d at 1329 ("mere gross negligence is
insufficient to justify an inference of an intent to deceive the
PTO"). Nor, as MPS correctly notes, does the alleged materiality
of information itself provide clear and convincing evidence of
intent to deceive. See Halliburton, 925 F.2d at 1440 (intent
cannot be presumed from a showing of materiality). Furthermore, MPS correctly notes that
evidence indicative of good faith must be considered when
determining intent to deceive. Mr. Moyer testified that if he
placed himself back at the time of the prosecution of the
patents, he would not have disclosed the Cosby/Nelms article to
the PTO because he believes it is cumulative of other references
and of the inductive mode half bridge device the inventors cited
as prior art in their patent application. Bench Trial Tr.
41:20-42:6. That testimony, in light of his testimony regarding
what he perceived to be the differences between the patents and
the Cosby/Nelms article and what information was already
disclosed in other references before the patent examiner, is
credible and reasonable.
Even accepting all of O2 Micro's inferences as fact, the Court
finds that it has failed to present clear and convincing evidence
that Mr. Moyer formed a culpable intent to withhold the
Cosby/Nelms article from the patent examiner during the
prosecution of either patent.
Because O2 Micro fails to present clear and convincing evidence
to meet the threshold for materiality or for intent to deceive,
no balancing of materiality and intent can be undertaken to
"determine whether the equities warrant a conclusion that the
patentee has engaged in inequitable conduct." Hoffmann-La Roche,
Inc. v. Promega Corp., 323 F.3d 1354, 1359 (Fed. Cir. 2003). In sum, the Court concludes that O2 Micro has failed to meet
its burden to provide clear and convincing evidence that the
Cosby/Nelms article meets the threshold of materiality or intent
B. Exceptional Case and Attorneys' Fees
O2 Micro argues that it should be awarded reasonable attorneys'
fees under Title 35 U.S.C. section 285, which provides that in
exceptional patent cases courts "may award reasonable attorney
fees to the prevailing party." This attorneys' fees request is in
addition to O2 Micro's request for attorneys' fees under the
California UTSA. Its argument that this is an exceptional case is
largely based upon the alleged inequitable conduct of MPS.
However, the Court does not find that MPS engaged in inequitable
O2 Micro further argues that MPS' misconduct during the
litigation, by itself, may warrant a finding that this is an
exceptional case. But the cases O2 Micro cites do not support
that argument. In A.B. Chance Co. v. RTE Corp., 854 F.2d 1307,
1313 (Fed. Cir. 1988), the court ruled that the district court
needed to decide whether the party engaged in inequitable conduct
before it denied exceptional case status and hence attorneys'
fees to the moving party. In Cambridge Products, Ltd. v. Penn
Nutrients, Inc., 962 F.2d 1048, 1050-51 (Fed. Cir. 1992), the
court found that the exceptional nature of the case must be
established by clear and convincing evidence, explaining that
"exceptional cases" are normally those of bad faith litigation or those involving fraud
or inequitable conduct by the patentee in procuring the patent.
Like the moving party in Cambridge Products, O2 Micro fails to
establish by clear and convincing evidence that this is an
exceptional case under section 285 or that MPS pursued this
litigation in bad faith. Id. at 1051. Thus, the Court finds
that this is not an exceptional case under section 285 and does
not award attorneys' fees.
C. MPS' Motion Regarding Advisory Jury Verdict
MPS argues that, based on a recent Federal Circuit case, the
Court should treat the jury verdict regarding the patent issues
as advisory. See In re Technology Licensing Corp.,
423 F.3d 1286 (Fed. Cir. 2005) (holding that a patentee seeking only
injunctive relief on its infringement counterclaim has no right
to a jury trial, regardless of whether the accused infringer
asserts invalidity as a defense). That case, however, does not
give this Court the power to transform a jury verdict into an
advisory finding after the verdict is returned. The Ninth Circuit
has not addressed precisely this issue. But, as stated by the
The parties are entitled to know prior to trial
whether the jury or the court will be the trier of
fact. Pradier v. Elespuru, 641 F.2d 808, 811 (9th
Cir. 1981). This conclusion follows from the language
of Rule 39(c), which permits the district court to
try a case "with an advisory jury," not to have the
case tried by a jury and essentially exercise a veto
power. Thompson v. Parkes, 963 F.2d 885, 890 (6th Cir. 1992).*fn9
Furthermore, O2 Micro correctly notes that the circumstances of
this case are distinguishable from In re Technology Licensing
Corp., where the patentee voluntarily and permanently abandoned
its damages claim after an adverse court ruling that dramatically
limited its damages. Here, like in In re Lockwood, 50 F.3d 966
(Fed. Cir. 1995), vacated on other grounds, 515 U.S. 1182
MPS, the patentee, did not elect to limit
itself to an equitable remedy. Unlike the patentee in In re
Technology Corp., MPS did not forfeit its "right to a jury trial
by taking any steps that would have required" it, historically,
to file its case in equity. 423 F.3d at 1289. Rather, the Court
ruled that MPS lacked evidence of damages and granted O2 Micro's
motion for summary adjudication on that issue.
The Court will not and cannot treat the jury's verdict
regarding the patent issues as advisory. CONCLUSION
For the foregoing reasons, the Court DENIES O2 Micro's request
for injunctive relief (Docket Nos. 1166 [Public Version], 1167
[Filed Under Seal]).*fn11 The Court DENIES in part and
GRANTS in part MPS' motion for judgment as a matter of law
(Docket No. 1163). The Court GRANTS judgment as a matter of law
that the award of unjust enrichment damages was not based on
evidence presented at trial, but DENIES judgment as a matter of
law that O2 Micro failed to prove use of Trade Secrets 1, 8, 9,
10 and 11. The Court GRANTS O2 Micro's request for a reasonable
royalty and exemplary damages, but DENIES O2 Micro's request for
attorneys' fees under the UTSA (Docket Nos. 1166 [Public
Version], 1167 [Filed Under Seal]). The Court finds and concludes
that O2 Micro failed to show by clear and convincing evidence
that MPS engaged in inequitable conduct. The Court further finds
that this is not an exceptional patent case and thus DENIES attorneys' fees under Title 35 U.S.C. section 285.
The Court DENIES MPS' motion requesting that, as to the patent
issues, the jury verdict be treated as advisory (Docket No.
IT IS SO ORDERED.
© 1992-2005 VersusLaw Inc.