Metropolitan News-Enterprise


Friday, June 6, 2003


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Ninth Circuit Deals Double Blow to Company in Technology Dispute


By KENNETH OFGANG, Staff Writer/Appellate Courts


A Riverside-based electronics company that has been in litigation with one of its competitors for years suffered a double defeat in the Ninth U.S. Circuit Court of Appeals yesterday.

A three-judge panel overturned a 1998 jury verdict in favor of Bourns Inc., on its antitrust claim against Raychem Corp., while upholding a judgment for $18.5 million in Raychem’s trade secrets suit against Bourns.

Bourns stood to recover over $200 million, including treble damages and attorney fees, had the antitrust verdict stood. The company claims that Raychem—which was acquired by Tyco International, Ltd. four years ago—fraudulently procured four patents for surge control devices that Raychem did not make and prevented Bourns from competing for the business by threatening to enforce the patents.

Trade Secrets Suit

In the trade secrets suit, tried in 2000, Raychem successfully contended that Bourns hired away several Raychem employees and used their knowledge of Raychem’s processes to manufacture competing products. Bourns violated California law, the Ninth Circuit agreed, by inducing the employees to violate confidentiality agreements.

The suits here, as well as related litigation in the United Kingdom, arises from competition for sales of polymeric positive temperature coefficient devices, or PPTCs. Raychem became the first mass producer of the devices during the 1980s, and in 1988 it licensed Bourns to distribute PPTCs in Europe for a limited range of applications.

Both trials took place before then-U.S. District Judge Carlos Moreno of the Central District of California prior to his appointment to the California Supreme Court. In the trade secrets trial, Raychem presented evidence that Bourns hired a former Raychem executive, Steve Hogge, in 1994 but denied to Raychem that it had done so.

Hogge sent a letter to Raychem in August 1994 saying he was unaware of having received any sensitive information from Raychem and had no Raychem documents in his possession. But Raychem presented testimony that Hogge had been meeting with Raychem employees about the possibility of their working for Bourns.

Dates Disputed

Hogge also testified that he had burned whatever Raychem documents he had, two days before he sent the letter. But Raychem’s lawyers pointed out that he had testified in his deposition that he burned the documents after being confronted with his exit interview, in which he was reminded he had promised to return all documents to the company, on Aug. 30.

Hogge was to receive up to $14 million in profits from the PPTC business he was developing for Bourns. Bourns entered the PPTC market some 20 months after two former Raychem employees joined Bourns in late 1994, working under Hogge.

The jury awarded Raychem $39 million, including $13 million in punitive damages, against Bourns and $4 million against Hogge. Moreno granted a remittitur, reducing damages to $18 million against Bourns and $500,000 against Hogge, which Raychem accepted.

Senior Judge John T. Noonan Jr., writing for the Ninth Circuit, rejected Bourns’ challenges to the verdict, saying there was sufficient evidence of misappropriation to support it.

Bourns argued that Raychem did not identify its trade secrets with particularity, that what Raychem said were trade secrets were actually within the public domain or made available to the public. But Noonan said that while the evidence was in dispute, there was sufficient proof to support the verdict.

The judge went on to say that under California law, Bourns was liable for having interfered with the confidentiality clauses in the employees’ contracts, independent of its responsibility for using trade secrets.

Judge’s Reasoning

Noonan explained that Bourns was aware of the clauses, yet hired the employees for positions that the district judge found made it “virtually inevitable” that they would use their knowledge of Raychem’s processes. Bourns took no action to prevent the use of the confidential information, Noonan said.

In the antitrust case, the jury returned a verdict fixing Bourns’ damages at $64 million. Moreno found that amount excessive and ordered a new trial on damages, but denied Raychem a judgment notwithstanding the verdict, and both sides appealed.

In denying JNOV, Moreno explained that even though the jury found that Bourns had no intent to enter the PPTC business before Dec. 1, 1994, there was sufficient evidence to find that Raychem’s threat to enforce its patents—which were found to be fraudulently procured—deterred Bourns from entering the market sooner and thus causes antitrust injury.

The appellate panel disagreed. There could not, Noonan said, be antitrust injury during a period when Bourns lacked the necessary materials and knowledge to make PPTCs, had not allocated funds to do so, and had “failed every test of preparedness to be a PPTC competitor.”

The jurist elaborated:

“The threats that Bourns showed were made by Raychem to enforce its patents were made in May 1994 and September 1994. They were threats to a bystander who was pawing the ground: don’t get into our turf. They were not threats to a competitor or to a business prepared to be a competitor. They did constitute an abuse of Raychem’s invalid patents. They did not constitute antitrust injury for the threats were not addressed to a business in the market or to a business that was prepared to enter the market.”

Judge A. Wallace Tashima concurred in Noonan’s opinion.

Judge Harry Pregerson concurred as to the trade secrets case, but argued that Bourns was entitled to antitrust damages.

Under U.S. Supreme Court and Ninth Circuit precedent, Pregerson argued, a company that is deterred by unlawful threats from entering into competition need only show that it was a potential competitor.

“I submit that the majority erroneously substituted its own determination of the evidence for the jury’s verdict...,” he wrote. “None of this court’s prior decisions require as a matter of law that a company unlawfully monopolizing the market by threatening competitors with fraudulently obtained patents make such unlawful threats after the time when a potential competitor is prepared to enter the market.”

Attorneys on appeal were Charles C. Lifland of Los Angeles for Bourns, San Francisco’s Peter A. Wald for Raychem, and Allan Gabriel of Los Angeles for Hogge.

The case is Bourns, Inc. v. Raychem Corporation, 01-56245.


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