Holding: The date of accessibility for a trade secret is the day that the trade secret could have been ascertained by the public rather than the day that the trade secret was actually ascertained by the public.
Ams-OSRAM USA Inc. (formerly known as Texas Advanced Optoelectronic Solutions, or TAOS) sued Renesas Electronics America (formerly known as Intersil Corporation) for patent infringement, misappropriation of trade secrets, and breach of a confidentiality agreement. These claims relate to ambient light sensors used in electronics to adjust screen brightness. In 2015, a jury found Intersil liable for trade-secret misappropriation and for breach of the confidentiality agreement. The Federal Circuit remanded to the district court, finding that for the trade-secret award, TAOS sought damages in the form of disgorgement of profits, which has to be determined by a judge and not the jury. On remand, TAOS was awarded damages representing disgorgement of Intersil’s profits from sales of its ISL29003 product and exemplary damages of double that amount. For the breach of contract award, TAOS was awarded a reasonable royalty on Intersil’s sales of products other than the ISL29003.
In June 2004, TAOS and Intersil had considered a possible merger with discussions covered by a confidentiality agreement. During due-diligence, TAOS gave Intersil confidential information about their ambient light sensor technology. After merger discussions ended in August 2004, Intersil used TAOS’s confidential information to develop the ISL29003 and other competing products. TAOS publicly released a product incorporating the confidential information in February 2005. Intersil became an approved vendor of the ISL29003 for Apple iPod Touch in September 2006 and for the iPhone 3G between January and March 2008.
In calculating its disgorgement award, the district court found that TAOS’s trade secret became publicly accessible in January 2006, when Intersil successfully reverse-engineered the trade secret from TAOS’s product that was released in February 2005. However, applying Texas law, the Federal Circuit found that the district court erred in determining the date of accessibility by focusing on when Intersil actually reverse-engineered the trade secret rather than focusing on when Intersil could have reverse-engineered the trade secret. Information does not qualify as a trade secret if it is readily ascertainable without engaging in unlawful behavior. Although TAOS’s product did not immediately give away its trade secret upon naked-eye inspection, expert testimony established that the trade secret could be reverse engineered in about a week. Therefore, the district court erred in determining the accessible date of the trade secret to be January 2006, when it should have been February 2005.
In addition to determining the date of public accessibility of the trade secret, the Federal Circuit also examined the inquiry of the proper length of the head-start period created by Intersil’s misappropriation of TAOS’s trade secret. The head-start period is the amount of time that it would have taken Intersil to create its own products if it had legally discovered the trade secret. Applying a head-start period to the calculation of damages prevents Intersil from unfairly taking advantage of its trade secret misappropriation in the competitive market place. The Federal Circuit found no clear error in the district court’s finding of a 26-month head start period. Therefore, any sales made by Intersil resulting from the misappropriated trade secret before April 2007 were wrongfully made and subject to disgorgement of profits. Intersil was approved as a vendor for the iPod Touch in September 2006. Although this is after the date that TAOS made its trade secret publicly available, since this date still falls within the head-start period, the profits from sales for the iPod Touch may still be included in the disgorgement award. If Intersil had not misappropriated TAOS’s trade secret, Intersil would likely not have had a product that Apple would have approved for use in September 2006.
Intersil also challenged the reasonable royalty damages award for breach of contract for several different reasons. First, Intersil argued that the trade secret and contract claims arose from the same injury and that TAOS should not be allowed to recover damages on both. However, the damages award covered two non-overlapping sets of units sold by Intersil. The disgorgement of profits award covered sales of the ISL29003 which stemmed from the trade secret misappropriation, while the reasonable royalty was based on the sale of other products. Intersil also argued that its derivative products should not have been included in the royalty award since those products did not physically incorporate TAOS’s trade secret. However, under California law, which covered the breach of contract claim, breach of a confidentiality agreement protects against the confidential information being used to aid a misappropriator in developing their own products.
Intersil further challenged the amount of prejudgment interest awarded to TAOS on both the trade-secret and the contract claims. The district court awarded prejudgment interest on the entire judgment starting on the day that the TAOS filed suit. However, some of Intersil’s sales included in the damages awarded occurred after this date. The Federal Circuit held that prejudgment interest for these sales cannot start accruing until they actually occurred. Therefore, the award of prejudgment interest was vacated and remanded to the district court for further reconsideration. However, the Federal Circuit recognized that it may not be feasible to determine the exact date of each sale. Instead, the Federal Circuit indicated that a calculation method that has a justifiable level of granularity to determine the appropriate prejudgment interest owed will be sufficient.
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