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Grail Semiconductor, Inc. v. Mitsubishi Electric & Electronics USA, Inc.

California Court of Appeals, Sixth District

April 22, 2014

GRAIL SEMICONDUCTOR, INC., Plaintiff and Appellant,

Trial Court: Santa Clara County Superior Court No. 1-07-CV098590 Hon. Kenneth P. Barnum Trial Judge

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[Copyrighted Material Omitted]

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Davis Wright Tremaine, Martin L. Fineman and Russell J. Hanlon for Plaintiff and Appellant.

Sidley Austin, Peter I. Ostroff, Mark E. Haddad and Michelle B. Goodman for Defendant and Appellant.



After a jury reached a verdict in favor of plaintiff Grail Semiconductor, Inc. (Grail) on Grail's action for breach of contract, the trial court ordered a new trial on damages, at the request of defendant Mitsubishi Electric & Electronics USA, Inc. (Mitsubishi). Both parties appeal. Mitsubishi contends that (1) the court should have ordered judgment notwithstanding the verdict (JNOV) instead of a new trial because Grail failed to establish the element of damages, and (2) the court should at least have granted a new trial on liability for breach of contract because it had prejudiced Mitsubishi's

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defense by admitting untrustworthy hearsay documents as business records. In its appeal Grail contends that the court erred by refusing to grant it injunctive relief. We find no prejudicial error and therefore must affirm the orders.


The issues in this action revolved around the disclosure of a new technology in memory chip design created by inventor Donald Stern, cofounder of Grail. Before Stern's invention there were three kinds of memory: SRAM (static random access memory), which is fast but large and expensive; DRAM (dynamic random access memory), which is small and cheap but requires more power and, like SRAM, is volatile (i.e. it loses data when electric power is removed); and FLASH (or "flash") memory, which is nonvolatile (i.e., retains the information even if the electrical power is removed), but relatively slow. Stern’s idea was to combine the strengths of those three memory types—"the density of DRAM, [the] speed of SRAM and the non-volatility of FLASH"¬ó in a single chip. Witnesses expressed the view that if the design worked, it would be revolutionary, using words like "disruptive" (a "unique" innovation with "great utility" which "totally changes the market") and the "Holy Grail" of memory technology.

Stern’s invention used the property of inductance, which occurs "when current passes through a wire, [causing] a magnetic field to form. And then when the current stops, the magnetic field collapses." "Inductance" had always been considered a "bad thing, " an effect to be eliminated; it created extra signals and caused electrical noise and errors to occur in the circuits. Stern's departure from this "conventional wisdom" involved "figuring out how to take the inductive force and actually using it to accelerate the storing of the charge into the layers to allow the device to operate much, much faster." Stern obtained a patent for his design, which he called an "inductive storage capacitor."[1]

In January 2000 Stern and his cousin Robert Stern incorporated a startup company in order to market Stern's technology. Between the last quarter of 2000 and the first quarter of 2003 Grail unsuccessfully tried to recruit investors in the company. By March of 2001 Grail had run out of money.

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In the morning of April 19, 2001, Stern and Grail met with two representatives of Mitsubishi, Ryuichi Matsuo and Kazutoshi Hirayama, [2] along with representatives of two other companies¬óGlobal Alliance, a "finder" for Mitsubishi, and Asia Star Ventures, a consulting company that introduced Silicon Valley startups to Asian companies. Also in attendance were Terry Speizer, the Grail president and chief operating officer; and Mark Speizer, its chairman and chief executive officer. At the meeting, Matsuo signed a Nondisclosure Agreement (NDA) which required Mitsubishi "to keep in strict confidence and trust and not use, disclose or make available to others, including any of its affiliates or third parties any 'Proprietary Information' and 'Company Documents and Materials' (together 'INFORMATION') without the prior written consent of [Grail]."

Grail then gave a PowerPoint presentation describing the technology, including the concept of the use of inductive force. Witnesses gave conflicting testimony about whether any of the information presented at the meeting was confidential. Both Terry and Mark Speizer maintained that Stern had always refused to disclose the details of his technology to anyone, including them; indeed, he appeared to be extremely concerned that someone would try to steal his ideas, and he would not agree to have it tested for investors.

Stern testified that in the afternoon the group met again in Grail's San Jose office. Both Terry and Mark Speizer asserted that there was no afternoon meeting in Grail's office; by that time the office had already been closed to save money. According to Stern, they split up into two groups, and he met privately with Hirayama while the Speizers met with Matsuo about the business plan. During this second meeting, Stern said, he disclosed to Hirayama 16 items of confidential information. Stern showed Hirayama drawings that had been submitted with the patent application and explained the "concept of [using] inductance to store electronic charges." Hirayama took extensive notes in Japanese and made copies of Grail's drawings, including some of the patent application drawings.

Grail's efforts did not culminate in any outside investment or product development. In June 2004, however, Stern read an article regarding technology promoted by Renesas Technology, which had been formed in April 2003 through a joint venture between Mitsubishi Electric Company ("Mitsubishi Japan"), the parent company of defendant Mitsubishi USA, and Hitachi, Ltd. ("Hitachi").[3] At the time it was formed, 55 percent of Renesas was owned by

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Hitachi and 45 percent was owned by Mitsubishi Japan. Hirayama was one of the 143 Mitsubishi employees from the 320-employee Electronic Device Group who transferred to Renesas in 2003. He remained there for seven months.

The 2004 article Stern saw discussed a new Renesas memory chip which Stern believed incorporated Grail’s technology in violation of the NDA. In June 2007 Grail initiated this action, alleging misappropriation of trade secrets, unfair competition, breach of contract, and related causes of action. Its fifth amended complaint, the operative pleading at trial, filed in late 2009, stated only one cause of action, for breach of contract; it sought not only damages but injunctive and declaratory relief and a constructive trust.

During the 2012 trial extensive testimony was presented on two products publicized in 2004 by Renesas: a new memory cell called SuperSRAM and its use of MONOS (metal, oxide, nitride, oxide silicon)[4] embedded flash memory in its microcontroller unit (MCU) devices.

Yuji Kihara, the designer of SuperSRAM, testified that he did not communicate with Hirayama or Matsuo about the design of SuperSRAM during his time at either Mitsubishi or Renesas. Kihara also stated that SuperSRAM did not combine the features of flash, DRAM, and SRAM. It improved the performance and solved the problems of conventional SRAM at reduced cost, but could not achieve "as high a density as flash or DRAM." Kihara did state that SuperSRAM had the same capacity as DRAM (larger than SRAM), and that "circuit wise it mainly uses DRAM." But he also explained the reduced soft error rate, [5] which was ...

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