IP Law Daily, TRADE SECRETS—N.D. Cal.: Trade secret misappropriation verdict on computer memory schematics upheld, (May 31, 2016)

By Peter Reap, J.D., LL.M.

A jury reasonably relied on information distinguishing four computer memory schematics from 21 similar schematics and determining that United Memories (“UMI”) misappropriated GSI Technology’s trade secret information in those four schematics, the federal district court in San Jose has decided (GSI Technology, Inc. v. United Memories, Inc., May 26, 2016, Grewal, P.). Thus, motions for judgment as a matter of law (JMOL) filed by both GSI and UMI seeking to overturn the jury’s verdict on GSI’s trade secret misappropriation claim were denied. In addition, UMI’s motion for JMOL on GSI’s breach of contract claim was granted in part to the extent that there was not substantial evidence supporting a breach of the confidentiality clause in the parties’ contract.

GSI designs, develops and markets computer memory products and UMI provides integrated circuit design and layout services. In May 2008, UMI agreed to provide design and layout services for GSI’s 576 Mb chip. the parties sealed their deal with a written agreement that contained terms governing the ownership of the circuit schematics and associated intellectual property rights, UMI’s ability to do other LLDRAM design work while working for GSI, the use of confidential information and liability arising out of this project.

More than three years after the parties’ relationship terminated, GSI learned that its competitor, ISSI had worked with UMI to prepare its winning bid, GSI filed this suit against UMI with claims for breach of contract, violation of California’s Unfair Competition Law and a declaratory judgment as to the rights conferred by the 576 Mb agreement. GSI later amended its complaint, adding ISSI as a party and asserting four more state law causes of action: fraud, false promise, misappropriation of trade secrets and intentional interference with prospective economic advantage.

On the trade secret misappropriation claim, the jury found that GSI “owned the information in” four of the 25 circuit schematics at issue (chcon, rclk, rclk_match and dmmatch), but not the remaining 21. The jury also found that “the information in” these four circuit schematics (but not the other 21) “was a trade secret at the time of the claimed misappropriation,” and that UMI had “improperly used or disclosed the trade secret information in” those four schematics. Although the jury found that UMI’s misappropriation “was a substantial factor in causing GSI to suffer harm,” it awarded $0 in general damages.

On the breach of contract claim, the jury found that GSI and UMI had “enter[ed] into a contract” and that UMI “fail[ed] to comply with its obligations under the contract,” which “cause[d] GSI damage.” The jury rejected UMI’s affirmative defenses of unclean hands, estoppel, waiver, statute of limitations and mitigation, and awarded GSI general damages of $532,400 and special damages of $421,000, for a total award of $953,400.

Trade secret claim. GSI and UMI’s JMOL motions on misappropriation asked essentially the same question: was it consistent for the jury to find that the information in some schematics was a trade secret and that the information in other schematics was not? Based on substantial evidence, the answer is yes: there was no inconsistency in the jury’s findings, the court held.

GSI and UMI both argued that the jury logically should have treated the information in all of the schematics the same way: the jury should either have found that the information in all of the schematics was a project trade secret (GSI) or that the information in none of the schematics was a project trade secret (UMI). The assumption underlying these arguments was that there was no way for the jury to distinguish the four schematics from the other 21.

A key piece of evidence dismantled both GSI’s and UMI’s positions: ISSI’s technical expert, Carl Sechen, testified that the information in the four schematics was distinct from that in the 21, the court observed. The jury submitted a question for Sechen that drew out a difference between the four schematics and the 21: “Did you find those four schematics, as opposed to the functionality of those schematics, anywhere in the public domain, in any of the ISSI sources, or anywhere else?” Sechen answered, “Not the identical schematic, no.” This testimony plainly distinguished the information in the four schematics from that in the other 21 schematics; whatever a different jury or judge might conclude, there was nothing unreasonable in relying on that, the court opined UMI argued that GSI provided no evidence showing that it owned the information in the four schematics and that it was improper for the jury to find in GSI’s favor by relying on evidence put forward by UMI and ISSI. Neither argument was persuasive, the court said.

UMI was wrong that GSI provided no evidence showing that it owned the information in the four schematics. For example, Chiang testified that UMI designed five categories of RLDRAM features for the first time for its project with GSI, and that the coherency control block (chcon), rkcl, rkcl match (rkcl_match) and data mask match (dmmatch) schematics implemented those categories. Faue, Sechen or others may have said something to the contrary, but the jury was entitled to credit Chiang more.

As for UMI’s assertion that the jury could only rely on GSI’s evidence to find for GSI and could not rely on UMI’s or ISSI’s evidence, there was no authority for that position, the court reasoned. Furthermore, the jury was instructed to “base [its] decision on all of the evidence, regardless of which party presented it.” This instruction was based on the Ninth Circuit Manual of Model Jury Instructions, and UMI did not object.

Breach of contract claim. UMI advanced several arguments in support of its motion for JMOL on GSI’s contract claim. While UMI was correct that there was not substantial evidence supporting a breach verdict based on the confidentiality clause, the jury verdict stands unchallenged based on the ownership clause, and there was substantial evidence to support a breach verdict based on the non-compete, the court held.

Damages. Finally, UMI sought JMOL on the damages the jury awarded GSI for breach of contract: $532,400 in general damages and $421,000 in special damages. UMI was correct that GSI waived and affirmatively disclaimed any general damages for breach of contract and that the special damages award was improper, the court concluded.

First, GSI explicitly waived general damages for breach of contract on several occasions. For example, when UMI proposed a jury instruction on general damages for breach of contract, GSI objected that UMI’s proposed instruction was improper because it “addresse[d] general damages, but GSI seeks only special damages.”

Second, GSI was not entitled to special damages for breach of contract. The contract’s liability limitation clause explicitly limits “consequential, incidental, special or punitive losses or damages . . . whether asserted as a claim in contract, tort, negligence, product liability or strict liability.” Special damages are only allowed “for a breach of confidentiality obligations under Article 6 [or another clause not at issue].” Because UMI did not breach the confidentiality provision of the contract, the liability limitation clause barred any special damages, according to the court. Furthermore, the jury’s special damages award of $421,000 was not supported by the evidence.

The case is No. 5:13-cv-01081-PSG.

Attorneys: Jeffrey M. Shohet (DLA Piper LLP) and Christopher James Beal (Dillon Gerardi Hershberger Miller & Ahuja, LLP) for GSI Technology, Inc. Korula T. Cherian (RuyakCherian LLP) and Constance Faye Ramos (Winston & Strawn LLP) for United Memories, Inc. Anthony J. Weibell (Wilson Sonsino Goodrich & Rosati) for Integrated Silicon Solution, Inc.

Companies: GSI Technology, Inc.; United Memories, Inc.; Integrated Silicon Solution, Inc.

Cases: TradeSecrets CaliforniaNews