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O2 MICRO INT'L LIMITED v. MONOLITHIC POWER SYSTEMS

November 10, 2005.

O2 MICRO INTERNATIONAL LIMITED, a Cayman Islands corporation, Plaintiff,
v.
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 these requests.

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 advisory.

  BACKGROUND

  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) signals.

  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.

  DISCUSSION

  I. Injunction

  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 injunction."

  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).

  A. Timeliness

  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.

  B. Waiver

  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 Cir. 2002).

  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 court:
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.

  C. Use

  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 ...


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