Wednesday, April 23, 2014
Court of Appeal Grants New Trial in Suit Over Stolen Technology
Panel Upholds Jury’s Finding Mitsubishi Violated Secrecy Pact, Agrees That Damages Were Miscalculated
By KENNETH OFGANG, Staff Writer
The Sixth District Court of Appeal yesterday upheld a Santa Clara Superior Court judge’s order granting a new trial on damages in a lawsuit in which Mitsubishi Electric Co. was found to have breached a confidentiality agreement with a Silicon Valley startup.
Grail Semiconductor, Inc. did not challenge Judge Kenneth P. Barnum’s order that the case be retried on the sole ground that the jury used an incorrect measure of damages. Mitsubishi appealed, arguing that it should have been granted judgment notwithstanding the verdict, or a new trial on liability as well, and Grail cross-appealed Barnum’s denial of an injunction against further disclosures.
The Court of Appeal affirmed in all respects.
Grail, which was cofounded by prolific inventor Donald Stern, filed suit in 2007. It accused Mitsubishi of misappropriation of trade secrets, unfair competition, and breach of contract, among other things.
Stern’s company claimed the defendant had violated an agreement not to disclose information it obtained in 2001, when the two companies were discussing a possible agreement to develop memory technology Stern was working on. It was Stern’s idea to combine the strengths of three different memory types—”the density of DRAM, [the] speed of SRAM and the non-volatility of FLASH”— in a single chip.
Witnesses said that if the design worked, it would be the “Holy Grail” of memory technology.
Nothing came of the discussions between Grail and Mitsubishi, but Grail’s complaint alleged that the technology was passed along to Renesas, a joint venture between Mitsubishi and Hitachi, Ltd., and incorporated in a Renesas memory chip.
Jurors agreed, and returned a verdict for $123,898,889. That is the precise amount that a Grail expert testified would be the smallest of three possible measures of damages.
The figure, Joseph Gemini testified, was calculated by taking the projected net cash flow if Mitsubishi had bought the technology, discounted by 15 percent. Gemini said that amount would compensate Grail for what it lost, based on the expectations of its business plan.
In granting a new trial on damages, but denying JNOV, Barnum ruled that Grail presented substantial evidence that Mitsubishi had breached the confidentiality agreement, and that the plaintiff was damaged as a result. The judge found the verdict flawed as to the amount, however, because it reflected the total value of the technology, and not just the value obtained by Mitsubishi.
Because Grail still had the ability to profit from its own technology, he said, the correct measure of damages is the amount Mitsubishi would have paid at the time of the 2001 meeting in exchange for the right to use the information.
This was correct, Justice Franklin Elia explained for the Court of Appeal, rejecting the defendant’s claim that the plaintiff failed to prove damages at all.
The jurist explained:
“[I]t was an error in the measure of damages that created the excess in the damages award, not simply a failure to prove any harm. The grant of a new trial was accordingly made not to shore up the evidence but to establish a legally sufficient measure reflecting the ‘value of what [Mitsubishi] actually took from Grail,’ a measure the court defined as ‘the amount [Mitsubishi] likely would have paid for a license to use or transfer the technology.’ Neither party has presented any reason on appeal to reject this theory of recovery.”
The justice went on to say that the trial judge did not abuse his discretion in denying injunctive relief, because there was no evidence that Mitsubishi was continuing to disclose confidential information or that it would do so in the absence of an injunction. Any liability of Ranesas for use of the technology, Elia explained, is the subject of a separate lawsuit.
The case is Grail Semiconductor, Inc. v. Mitsubishi Electric, Inc., 14 S.O.S. 1929.
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