Federal Circuit Holds That There Is No Right To A Jury Trial On A Claim For Disgorgement As A Remedy For Trade Secret Misappropriation
On Tuesday, May 1, 2018, the United States Court of Appeals for the Federal Circuit issued a decision affirming liability of plaintiff’s trade secret misappropriation claim, but vacating the monetary damages award. Texas Advanced Optoelectronic Solutions, Inc. v. Renesas Electronics America, Inc., f/k/a Intersil Corp., Appeal Nos. 2016-2121, 2016-2208, and 2016-2235. The Court held that plaintiff Texas Advanced Optoelectronic Solutions (“TAOS”) did not have a jury trial right on its claim for disgorgement of defendant Intersil’s profits, since disgorgement is equitable in nature and was not historically heard by law courts, at least as it concerned intellectual property claims.
In the early 2000s, TAOS and Intersil were both developing ambient light sensors, which use photodiodes to conduct a current proportional to absorbed light. The resulting current is measured by a sensor and is used to adjust the brightness of an electronic screen display (e.g., a dimmer screen can be used in a dark environment, which uses less power). One problem with then-existing ambient light sensors was infrared light, which is invisible to humans, but which is detected by the sensors. The sensors might respond to infrared light, and adjust screen brightness in an undesirable manner (e.g., increasing brightness beyond what is necessary, therefore wasting power). TAOS developed technology involving a series of diodes—some shielded from visible light and others unshielded—and then calculated the visible light by comparing the ratio of photocurrents in each of the different types of diodes. TAOS patented some implementations of this technology, but kept one—where the shielded and exposed wells are arranged in a 1:1 ratio (the “interleaved” design)—as a trade secret.
The interleaved design trade secret was presented to Intersil subject to a confidentiality agreement as part of diligence during merger discussions. Almost immediately after merger negotiations failed, Intersil pursued its own interleaved photodiode structure, and then won a contract to supply Apple for the iPhone 3G.
TAOS brought suit for, inter alia, trade secret misappropriation. A jury returned a verdict in its favor, and awarded nearly $50 million in disgorgement of Intersil’s profits. The Court then entered judgment for TAOS.
On appeal, Intersil argued that the district court erred in relying on the jury’s verdict on disgorgement. According to Intersil, monetary relief in the form of disgorgement is equitable and, as a result, the district court had to make specific findings of fact and conclusions of law pursuant to Fed. R. Civ. P. 52(a), while treating the jury verdict as merely advisory under Fed. R. Civ. P. 39(a),(c). The Federal Circuit agreed. The Court reasoned that disgorgement for trade secret misappropriation was historically available in courts of equity, starting in the early nineteenth century, but that there is no evidence that law courts would have awarded it (even if they may have awarded disgorgement for other types of torts). The Federal Circuit also looked to other analogues from 1791 as part of its Seventh Amendment historical inquiry. The Court determined that for intellectual property theft, including patent and copyright infringement, disgorgement was not historically available in law, likely because an infringer’s use of the misappropriated intellectual property does not prevent an owner from also using it.
The Federal Circuit then concluded that on remand, TAOS has no right to a jury decision on its request for disgorgement of Intersil’s profits as a remedy for trade secret misappropriation.