Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-4_00-cv-04071/USCOURTS-cand-4_00-cv-04071-0/pdf.json

Nature of Suit Code: 830
Nature of Suit: Patent
Cause of Action: 28:1338 Patent Infringement

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United States District Court

For the Northern District of California

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IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

O2 MICRO INTERNATIONAL LIMITED, 

a Cayman Islands corporation,

Plaintiff,

v.

MONOLITHIC POWER SYSTEMS, INC., 

a California corporation, and DOES 1

through 10,

Defendant. _____________________________________

MONOLITHIC POWER SYSTEMS, INC., 

a California corporation,

Counterclaimant,

v.

O2 MICRO INTERNATIONAL LIMITED, 

a Cayman Islands corporation, and

O2 MICRO, INC., a California

corporation,

Counterdefendants. /

Nos. 

C 00-4071 CW (EDL)

(consolidated with

C 01-3995 CW) 

ORDER DENYING O2

MICRO'S MOTION FOR

PERMANENT

INJUNCTION;

GRANTING IN PART

AND DENYING IN

PART MPS' RENEWED

MOTION FOR

JUDGMENT AS A

MATTER OF LAW ON

CERTAIN ISSUES;

AND ADDRESSING

OTHER ISSUES; 

FINDINGS OF FACT

AND CONCLUSIONS OF

LAW AFTER BENCH

TRIAL

Plaintiff and Counterdefendant O2 Micro International Limited

and Counterdefendant O2 Micro, Inc. (collectively, O2 Micro) move

for a permanent injunction and seek a finding of inequitable

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conduct and a finding that the case is exceptional under Title 35

U.S.C. section 285. O2 Micro further seeks, under the California

Uniform Trade Secrets Act, exemplary damages, an award of a

reasonable royalty and attorneys' fees. Defendant and

Counterclaimant Monolithic Power Systems, Inc. (MPS) opposes these

requests.

MPS renews, pursuant to Federal Rule of Civil Procedure 50(b),

its motion for judgment as a matter of law on issues related to O2

Micro's requests. MPS argues that neither the jury's unjust

enrichment damages award nor the underlying finding, that MPS used

the trade secrets, is supported by the evidence. O2 Micro opposes

the motion on procedural and substantive grounds. In a separately

filed motion, MPS further requests that, as to the patent issues,

the Court treat the jury verdict as advisory. O2 Micro also

opposes that motion.

The motions for injunctive relief and exemplary damages and

for judgment as a matter of law were heard on September 9, 2005. 

MPS' motion requesting that the jury verdict, in part, be treated

as advisory was submitted on the papers. On September 20, 2005,

the Court heard additional oral testimony regarding inequitable

conduct and reasonable royalty issues. Paul Meyer, O2 Micro's

damages expert, and James Moyer, one of the inventors of the

patents at issue, testified. Having considered all of the papers

filed by the parties, oral argument on the motions and evidence

presented, the Court finds that O2 Micro is not entitled to an

injunction. The Court denies MPS' motion for judgment as a matter

of law with respect to use, but grants MPS judgment as a matter of

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law with respect to the unjust enrichment damages award. The Court

grants O2 Micro a reasonable royalty and exemplary damages, but

denies O2 Micro's request for UTSA attorneys' fees. The Court

finds and concludes that MPS did not engage in inequitable conduct. 

O2 Micro has failed to prove by clear and convincing evidence that

the article in question was material and that MPS acted with intent

to deceive. The Court also finds that this patent case is not

extraordinary and thus that O2 Micro is not entitled to attorneys'

fees. The Court denies MPS' request that the Court treat the jury

verdict regarding patent issues as advisory. 

BACKGROUND

In November, 2000, O2 Micro brought suit against MPS for a

declaratory judgment that MPS' U.S. Patent Nos. 6,144,814, 

Apparatus for Controlling a Discharge Lamp in a Backlighted Display

(the '814 patent), and 6,316,881, Method and Apparatus for

Controlling a Discharge Lamp in a Backlighted Display (the '881

patent), were invalid and not infringed. The '881 patent, filed on

March 17, 2000, and issued on November 13, 2001, is a continuation

of the '814 patent, filed on December 11, 1998, and issued on

September 5, 2000. The patents relate to methods and apparatuses

for supplying electrical power for driving a discharge lamp, such

as a cold cathode fluorescent lamp (CCFL) used to backlight a

liquid crystal display (LCD) panel. The claimed methods and

apparatuses control the supply of power to the CCFL by controlling

the alternating current (AC) signal that is applied to the CCFL

from a range of direct current (DC) signals. 

MPS asserted counterclaims against O2 Micro for infringement

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of its patents. O2 Micro later filed a new lawsuit against MPS,

alleging misappropriation of its trade secrets. The Court

consolidated the two cases. Following a motion to dismiss, claim

construction, motions for summary judgment and discovery disputes,

the case proceeded to a jury trial on June 27, 2005. The equitable

issues were reserved for trial to the Court.

On July 18, 2005, after an eleven-day trial, the jury returned

a verdict. The jury found that O2 Micro's Trade Secret Claims 1

through 11 were trade secrets and that Trade Secrets 1 and 8

through 11 were misappropriated by MPS, who the jury determined

acted willfully and with malice. The jury awarded O2 Micro $12

million in unjust enrichment damages for MPS' misappropriation of

Trade Secret Claim 1, the transformer-related claim, but awarded no

damages for MPS' misappropriation of Trade Secrets 8 through 11. 

The jury further found that O2 Micro did not infringe the asserted

claims of MPS' '814 patent or its '881 patent and that all asserted

claims were invalid as anticipated by the prior art. 

DISCUSSION

I. Injunction

California Civil Code section 3426.2(a) provides, "Actual or

threatened misappropriation may be enjoined." O2 Micro

acknowledges that an injunction based on a trade secret no longer

secret is generally not permitted under the UTSA. But an

"injunction may be continued for an additional period of time in

order to eliminate commercial advantage that otherwise would be

derived from the misappropriation." Cal. Civ. Code § 3426.2(a). 

Thus, O2 Micro requests that the Court order a lead-time or "head

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start" injunction to eliminate MPS' commercial advantage, and O2

Micro's commercial disadvantage, resulting from the head start MPS

obtained through its misappropriation. See Lamb-Weston, Inc. v.

McCain Foods, Ltd., 941 F.2d 970, 974 (9th Cir. 1991) (noting that

a trade secret injunction "seeks to protect the secrecy of

misappropriated information and to eliminate any unfair head start

the defendant may have gained"). O2 Micro requests a "production

injunction," or, in the alternative, an "use injunction."

O2 Micro's requested production injunction would prohibit MPS

from "manufacturing, assembling, producing, distributing, offering

for distribution, circulating, selling, offering for sale,

advertising, marketing, importing, promoting, disclosing or using"

numerous listed MPS products and "any other product that satisfies

sufficient requirements to practice Trade Secret 1, and any boards

containing those products." O2 Micro's [Proposed] Order Re Motion

for Perm. Inj. at 2:9-15. But the two cases it cites, General

Electric Co. v. Sung, 843 F. Supp. 776, 779-780 (D. Mass. 1994),

and Viscofan, S.A. v. U.S. International Trade Commission, 787 F.2d

544 (Fed. Cir. 1986), do not support imposing such an extreme

injunction in this case. As noted by the court in Viscofan,

normally the misappropriator is only barred from using the

particular secrets he or she has taken. 787 F.2d at 449. Courts

impose production injunctions only in circumstances "where the

misappropriated trade secrets are 'inextricably connected' to the

defendant's manufacture of the product" and thus a "use injunction

is ineffective because the misappropriation cannot be relied upon

to 'unlearn' or abandon the misappropriated technology." General

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Elec. Co., 843 F. Supp. at 780. 

O2 Micro provides no evidence of "inextricable connection"

that would render a use injunction ineffective. Nonetheless, it

argues that a use injunction would be ineffective in eliminating

the competitive advantage MPS gained by its misappropriation

because only a production injunction can restore the playing field

to a fully level position. But O2 Micro fails to show any

competitive advantage, much less any advantage that can be

eliminated only through the drastic measure of a production

injunction. The only evidence O2 Micro cites to support the

alleged competitive advantage that MPS gained at O2 Micro's expense

is testimony that MPS was able to fix its problem in 2000, which

allegedly resulted in O2 Micro losing hundreds of thousands of

potential sales for its OZ960 product. But this evidence does not

prove that O2 Micro lost significant business opportunities because

of MPS' misappropriation. Nor does it prove that MPS gained a

competitive advantage through its misappropriation. The Court

finds that O2 Micro provides no evidence to justify a production

injunction.

O2 Micro's requested use injunction would prohibit MPS from

using any aspect of Trade Secret 1 for a six-month period from the

date the injunction is entered; O2 Micro claims that it took O2

Micro approximately six months to develop the trade secret. But,

as noted by MPS, and not denied by O2 Micro, the information at

issue has long been non-secret. In response, O2 Micro argues that

MPS' six-month head start continues to this day and has not been

eliminated by the passage of time. Again, however, O2 Micro

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provides no facts to support its argument that it continues to be

prejudiced by MPS' misappropriation.

Because the trade secrets at issue have been disclosed and

there is no evidence that a commercial advantage derived from the

misappropriation exists, the Court denies O2 Micro's motion for an

use injunction. 

II. Judgment as a Matter of Law 

 A motion for judgment as a matter of law after the verdict

renews the moving party's prior Rule 50(a) motion for judgment as a

matter of law at the close of all the evidence. Fed. R. Civ.

P. 50(b). Judgment as a matter of law after the verdict may be

granted only when the evidence and its inferences, construed in the

light most favorable to the non-moving party, permits only one

reasonable conclusion as to the verdict. Where there is sufficient

conflicting evidence, or if reasonable minds could differ over the

verdict, judgment after the verdict is improper. See, e.g., Kern

v. Levolor Lorentzen, Inc., 899 F.2d 772, 775 (9th Cir. 1990); 

Air-Sea Forwarders, Inc. v. Air Asia Co., 880 F.2d 176, 181 (9th

Cir. 1989); Peterson v. Kennedy, 771 F.2d 1244, 1252 (9th Cir.

1985); L.A. Mem'l Coliseum Comm'n v. NFL, 726 F.2d 1381, 1387 (9th

Cir. 1984).

A. Timeliness 

Before reaching the substance of MPS' motion, O2 Micro argues

that MPS' renewed motion for judgment as a matter of law is

untimely under Federal Rule of Civil Procedure 50(b). See Fed. R.

Civ. P. 50(b) ("movant may renew its request for judgment as a

matter of law by filing a motion no later than 10 days after entry

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of judgment"). O2 Micro focuses on the phrase: "no later than 10

days after entry of judgment," arguing that Rule 50(b) authorizes

only post-judgment motions for judgment as a matter of law. 

MPS correctly notes, however, that Rule 50(b) does not bar MPS

from filing its renewed motion at this time. O2 Micro points to no

other rule or case law that prohibits MPS from filing its motion

for judgment as a matter of law before judgment. 

O2 Micro further argues that this motion violates the Court's

instruction that JMOL matters should be addressed "separate and

apart" from equitable matters still pending, and only after the

equitable matters were decided. As correctly noted by MPS,

however, the issues presented in this motion and O2 Micro's motion

for exemplary damages and injunctive relief are intertwined. The

Court considers the issues together.

B. Waiver

O2 Micro further argues that the Court should not consider

MPS' motion on its merits because MPS waived its rights to renew

its motion for judgment as a matter of law. O2 Micro cites Ninth

Circuit precedent holding that the requirement to move for a

judgment as a matter of law at the close of evidence is strictly

construed in this circuit; "substantial compliance is not enough." 

Janes v. Wal-Mart Stores Inc., 279 F.3d 883, 887 (9th Cir. 2002). 

MPS does not deny that it did not make its motion at the close

of all the evidence. Instead, MPS notes that, like other circuits,

the Ninth Circuit makes an exception to this requirement in cases

where an earlier motion has been taken under advisement by the

trial judge. Farley Trans. Co., Inc. v. Santa Fe Trail Trans. Co.,

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1

 In Patel v. Penman, 103 F.3d 868, 878 (9th Cir. 1996), the

court noted that Rule 50(b) has been amended since Farley was

decided. The amendments, however, do not appear to have changed

the Rule as it applies in this situation. Id.

2

Unless otherwise specified, citations to the trial

transcripts refer to the jury trial.

3

MPS points out that O2 Micro did not renew its judgment as a

matter of law in open court before the jury; O2 Micro filed its

JMOL motion after MPS did. 

9

786 F.2d 1342, 1346 (9th Cir. 1986).1 As explained by the court:

The trial court's reservation of a ruling on a motion

for a directed verdict made before the close of all the

evidence maintains the motion as a continuing objection

to the sufficiency of the evidence, provides notice to

the opposing party of the challenge, and constitutes a

judicial indication that renewal of the motion is not

necessary to preserve the moving party's rights.

Id. at 1346-47. Here, MPS filed its motion for judgment as a

matter of law on July 11, 2005, before the close of all the

evidence on July 14, 2005. Therefore, MPS did not waive its right

to bring this motion. 

MPS also notes that the Court instructed the parties not to

make oral motions for judgment as a matter of law before the jury

and that when MPS and O2 Micro rested their cases the jury was

present. See Trial Tr. 1954:3-15.2 MPS argues that the Court

should not penalize it for following the Court's instructions and

filing its motion for judgment as a matter of law the same day as

the close of all the evidence.3 The Court will not. 

C. Use

MPS argues that O2 Micro failed to present any evidence that

MPS put any of its claimed trade secrets to commercial use. MPS

contends that, because O2 Micro failed to prove use, O2 Micro

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cannot recover damages or injunctive relief. 

MPS illustrates weaknesses in O2 Micro's trade secrets case. 

But a judgment as a matter of law is not about weaknesses, or even

gaps, in a party's case. As noted by O2 Micro, MPS does not

address, or even acknowledge, the high legal standard this Court

must apply to this motion. In the Ninth Circuit, the standard for

judgment as a matter of law, like the standard for summary

judgment, requires that the Court find that reasonable minds could

come to only one conclusion with respect to the elements of the

verdict. See, e.g., Kendall Jackson Winery, Ltd. v. E. & J. Gallo

Winery, 150 F.3d 1042 (9th Cir. 1998). O2 Micro presented

sufficient conflicting evidence, inferential evidence, and

questions regarding credibility that a reasonable juror could have

concluded that MPS used the trade secrets at issue.

1. Definition of Use

Before discussing the evidence presented at trial, the parties

dispute the definition of "use." The parties agree that use does

not mean mere possession of a trade secret or mere internal

discussion within the company of a trade secret; the parties

disagree over whether internal experimentation can constitute use. 

Based on the California and federal cases presented by the parties,

the Court concludes that internal experimentation with trade secret

information not resulting in a market product can constitute use. 

In AT&T Communications v. Pacific Bell, 1998 U.S. Dist. LEXIS

13459, at *8 (N.D. Cal. 1998), the court rejected the defendant's

argument that, for misappropriation and use to occur under the

California UTSA, the trade secret information must be sold to the

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plaintiff's competitors or used to compete directly. As recently

stated in PMC, Inc. v. Kadisha, 78 Cal. App. 4th 1368, 1383 (2000),

"Employing the confidential information in manufacturing,

production, research or development, marketing goods that embody

the trade secret, or soliciting customers through the use of trade

secret information, all constitute use." 

2. Trade Secret 1, the Transformer Claim

MPS argues that Trade Secret 1 consists of an O2 Micro chip

along with "the combination of seven Sumida transformer features."

If by "combination" MPS means a combination of all seven features,

however, it is wrong. O2 Micro correctly notes that, according to

the definition given to the jurors, Trade Secret 1 consists of

various permutations of those seven features. See List of O2

Micro's Trade Secret Claims ("1. O2 Micro's design and selection of

a transformer that has one or more of the following characteristics

with an inverter model that includes a OZ960, OZ961, OZ969A, OZ970

or OZ9RZ controller . . .") (emphasis added). Thus, each of items

d though g may be satisfied if in combination with "one or more" of

items a through c. Id.

To show use, MPS contends, O2 Micro would have to prove that

MPS either used an O2 Micro chip or altered an MPS chip to

incorporate O2 Micro chip features and then (1) used a transformer

with the seven allegedly secret features with such a chip on a demo

board shown to at least one customer; (2) recommended that an MPS

customer use such a chip along with a transformer with the seven

features; (3) recommended that an end customer ask the customer's

own suppliers to use such a chip along with a transformer with the

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seven features; or (4) recommended that a transformer manufacturer

alter the manufacturer's own transformer design to use the seven

features and that the manufacturer then try to sell that

transformer alongside such a chip. 

O2 Micro does not argue that it showed any of these four

scenarios. Instead, it correctly notes that MPS' definitions of

"use" and Trade Secret 1 are overly restrictive, as discussed

above. To show use in the first scenario, O2 Micro is not required

to prove that MPS showed a demo board to at least one customer. 

Use for research and development constitutes use. And, not all

seven features, or characteristics, must be present at the same

time.

The Court's finding that the evidence presented at trial was

sufficient to permit a rational jury to infer that MPS used, and

thus misappropriated, Trade Secret 1, is based on the following. 

In September, 2000, an MPS vice-president forwarded an OZ960 data

sheet to MPS engineers James Moyer and Paul Ueunten; the data sheet

was labeled confidential. Trial Exs. 214, 215; Trial Tr. 1338,

1339-1440. Mr. Ueunten testified that after looking at the

transformer network on the data sheet he concluded that, other than

an extra capacitor, O2 Micro's transformer network, including the

transformer, could be used with a MPS chip. Trial Tr. 1340:3-7. 

Approximately a month later, Mr. Ueunten compared the waveforms

from the confidential OZ960 data sheet with waveforms from an

O2 Micro's OZ960 demo board provided by an Ambit employee. Trial

Ex. 222; Trial Tr. 1340:12-1341:5. Mr. Ueunten concluded that the

transformer "must be the key to efficiency" of the OZ960 and asked

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if MPS could "get a hold of the inventor and/or its transformer." 

Trial Ex. 222; Trial Tr. 1341:14-19. Soon, the "general consensus"

at MPS was that "MPS' transformer design needs a thorough review

and is likely the quickest way to improve our circuit efficiency." 

Trial Ex. 125; Trial Tr. 525:3-12. 

MPS obtained another OZ960 demo board in October, 2000 from

Sumida. Although MPS contends that this board was a production

board and not a demo board, Dr. Lin, O2 Micro's Executive Vice

President in Engineering, testified that the board MPS obtained and

analyzed was a demo board. Trial Tr. 1882:16-1883:25. Mr. Ueunten

analyzed the transformer on this board. Trial Tr. 1341-32. And

that same month, MPS started listing on its bills of materials for

its customers the model of the transformer that O2 Micro was using. 

MPS' Mr. Moyer testified that this list was not "a recommendation

necessarily." Trial Ex. 4189; Trial Tr. 663:5-19 (emphasis added). 

In June, 2002, MPS still listed that model transformer in its bills

of materials it gave to its customers. Trial Ex. 4193. 

In November, 2000, Mr. Moyer analyzed the demo board that MPS

obtained from Sumida, and sent an e-mail noting the "dramatic"

difference between the transformers on the O2 Micro and MPS boards. 

Trial Exs. 227, 249. Simon Tsai was instructed to perform further

analysis on the OZ960 module, such as determining wire size and

secondary bays. Trial Exs. 227, 249; Trial Tr. 656-57, 659:10-

660:10. Mr. Tsai began "experimenting" and changing the thickness

of the wires, altering the turns ratio in the MPS transformer's

windings and filling in the bays on the transformer's bobbins. 

Trial Tr. 1507:17-25; 1509:1-7. Mr. Tsai testified that he

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"experimented" with MPS' transformer, aiming to improve the

performance of the transformer, in response to customer complaints

and Mr. Moyer's instructions. Trial Tr. 1508:11-25; 1509:12-16;

1510:6-16. From this evidence, the jury reasonably could have

concluded that MPS engaged in more than "internal discussions" of

the transformer design; the jury reasonably could have concluded

that MPS used the O2 Micro trade secret to improve the transformers

used with MPS controllers, or, at the very least, that MPS used the

trade secret for research or development purposes.

As noted repeatedly by MPS, however, use of the Sumida

transformer by itself does not show use of Trade Secret 1. Any

violation would have to include an O2 Micro controller, as well as

a showing of "one or more" of the seven characteristics. MPS

witness Kip Brown, however, testified that when testing an MPS demo

board, he found that the board included a transformer incorporating

six of the seven characteristics from O2 Micro's Trade Secret 1. 

Trial Tr. 1387:12-1390:21; 1411:8-14. Mr. Brown testified that

those six characteristics could not have been trade secrets because

MPS knew about them. Trial Tr. 1391:19-25. Thus, as O2 Micro

noted at trial, the question is whether the board examined by Mr.

Brown was created before or after MPS got access to the O2 Micro

boards. Trial Tr. 1411:15-17. MPS argues that this board

contained chips from early 2000, which was before it received O2

Micro's data sheet or O2 Micro's demo boards. But, as O2 Micro

correctly notes, the jury reasonably could have believed Mr.

Brown's testimony as to finding six out of the seven

characteristics and disbelieved Mr. Brown's testimony as to whether

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the six characteristics were secret; the jury reasonably could have

believed that the demo board examined by Mr. Brown was made after

MPS acquired O2 Micro's data sheet and demo board. Mr. Brown

admitted that his conclusion that the six characteristics he found

were not secrets was based on information he received from MPS

employee Mr. Ueunten. Trial Tr. 1411:24-1412:1; 1412:15-18;

1414:24-1415:8. His belief that MPS' board was created before MPS

got access to O2 Micro's board was based on information received

from MPS employees, particularly Mr. Ueunten, and dates that were

handwritten by Mr. Ueunten. Trial Tr. 1411:24-1412:18. The jury

reasonably could have disbelieved Mr. Ueunten's testimony, and

found him not to be credible, because if MPS had already arrived at

the same design solution as O2 Micro had, this likely would have

been reflected in MPS' e-mails presented to the jury. See Trial

Exs. 227, 249. It was not. Instead, the e-mails discuss the

"dramatic" differences between MPS' transformer and O2 Micro's

transformer. Id.

MPS argues that even if the six characteristics are present,

O2 Micro is trying to elude Trade Secret 1's required connection

with an O2 Micro's chip. The jury, however, reasonably could have

combined the testimony of Mr. Brown and other witnesses to infer

that the MPS demo board that employed six of the seven

characteristics was based on MPS' analysis of the demo boards with

O2 Micro chips. 

MPS also argues that O2 Micro admitted that various of the

transformer characteristics, such as wire size, were not secret. 

The jury, however, could have reasonably concluded that the

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combination of the different characteristics was the trade secret.

The jury was instructed that:

Combinations of public information from a variety of

different sources when combined in a novel way can be a

trade secret. It does not matter if a portion of the

trade secret is generally known, or even that every

individual portion of the trade secret is generally

known, as long as the combination of all such

information is not generally known.

Final Jury Instructions at 8:17-23. 

3. Trade Secret 8

Trade Secret 8 relates to information about cost and

configuration that is found in O2 Micro data sheets and

demonstration boards. MPS argues that O2 Micro never showed that

MPS made a sale as a result of any claimed secret information

relating to cost. The jury, however, could have reasonably

concluded that MPS used this confidential information, on the basis

of e-mails from MPS employee Fiona Wang and testimony from MPS vicepresident Maurice Sciammas. In one e-mail, Ms. Wang, who is in

charge of finance and customer service in Taiwan, stated that

Mr. Tsai used O2 Micro's data sheets to determine or verify

component count and solution cost information for O2 Micro. Trial

Ex. 395. In another e-mail, Ms. Wang attached a price analysis of

O2 Micro's OZ969A versus MPS solutions. Trial Ex. 440. Mr.

Sciammas testified that this information was valuable to MPS. Trial

Tr. 867:16-868:12. MPS asserts that this evidence does not point to

any external use or disclosure. It does not have to: research and

development constitute use.

4. Trade Secret 9

Trade Secret 9 relates to the desirability and benefits of a

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controller that O2 Micro was developing. As noted by MPS,

O2 Micro's expert, Mr. Meyer, stated that he was told by O2 Micro's

counsel or Dr. Lin that MPS did not practice Trade Secret 9. Trial

Tr. 1254:25-1255:10; 1256:1-6. But that testimony is not enough for

the Court to conclude that reasonable minds could have come to only

the single conclusion that Trade Secret 9 was not used. Testimony

was also presented that Trade Secret 9 was used to "evaluate"

whether MPS should make a similar product. Trial Tr. 873:10-76:7. 

The jury reasonably could have concluded that although MPS did not

affirmatively use this trade secret in its product, as Mr. Meyer

testified he was told, it did use this information as part of

research and development in deciding not to enter a market in which

it stood no chance of profiting.

5. Trade Secret 10

Trade Secret 10 is similar to Trade Secret 8, but relates

specifically to the solution cost and configuration information for

the OZ9RR part. MPS again argues that O2 Micro never showed that

MPS actually made a sale as a result of any claimed secret

information relating to cost. The jury, however, could infer that

MPS used this information to compare its product with OZR99 for use

in marketing a proposed new product.

6. Trade Secret 11

Trade Secret 11 relates to O2 Micro's method of using

multiplexing functions in the pins of the OZ9RR inverter controllers

so that one pin of the OZ9RR inverter controller may support

multiple functions co-existing in an inverter application. MPS

notes that Mr. Meyer stated that he was told by O2 Micro's counsel

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or Dr. Lin that MPS did not practice Trade Secret 11. Trial Tr.

1254:25-1255:10; 1256:1-6. But O2 Micro presented evidence from

which the jury could infer that MPS used this information in

implementing its own part, even though the functions that the MPS

part multiplexed were different then the functions multiplexed by

O2 Micro. Trial Tr. 781:18-782:16. The jury was entitled to

discount Mr. Meyer's testimony and to rely upon other evidence;

thus, the evidence does not point to the single conclusion that MPS

did not use Trade Secret 11.

B. Damages

MPS argues that, distinct from the question of use, the jury's

$12 million unjust enrichment award for Trade Secret 1, the

transformer-related trade secret, was not based upon evidence from

which a reasonable jury could have made that award. MPS correctly

notes that O2 Micro failed to present evidence of unjust enrichment

damages that was specific to Trade Secret 1. Instead, O2 Micro's

damages expert, Mr. Meyer, provided the jury with a damages

calculation based on an assumption that all of the trade secrets

were misappropriated. Mr. Meyer testified that MPS was unjustly

enriched by approximately $16 million based on the misappropriation

of all of the trade secrets. Trial Tr. 1254:5-12. The jury,

however, found that only five of the eleven trade secrets were

misappropriated, and that only the misappropriation of one of them

resulted in MPS being unjustly enriched. 

The Court warned O2 Micro of the dangers of bundling all of its

alleged trade secrets damages together:

[I]t seems to me that if Meyer is saying the damages

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are X dollars if they stole all our trade secrets, he

can say that. But if the jury finds that he only stole

11 of them, then his testimony would be stricken and

you would have no testimony because there'd be no basis

upon which a jury could decide what the damages were

from the theft of 11 secrets when they've heard

testimony only about what the damages are from 12

secrets unless somehow he can say that no matter how

many secrets are stolen, the same damages are accrued.

Transcript of Jan. 28, 2005 Pretrial Conference, 41:13-22. In the

same pretrial conference, the Court again told O2 Micro that "you

can have that kind of damage evidence if you want to. I'm just

warning you that if you do and you don't win on all 12 of your trade

secrets, you'll have no damages." Id. at 43:22-25. Then in the

Court's subsequent Pretrial Order, the Court ruled that "if O2 Micro

fails to prove at trial any of the hypotheses upon which Meyer

relies, including use, his expert testimony will be stricken as

irrelevant." Order After Jan. 28, 2005 Pretrial Conference at 

5:3-6.

Nonetheless, O2 Micro presented evidence of damages based on

misappropriation of all trade secrets, but was unable to convince

the jury that all trade secrets were misappropriated. O2 Micro now

wrongly contends that the damages award is supported by the

evidence. 

Citing Morlife, Inc. v. Perry, 56 Cal. App. 4th 1514 (1997),

O2 Micro states that, in trade secret claims, damages need not be

calculated with absolute precision. Damages do, however, need to

rest on a "reasonable basis." See, e.g., Tri-Tron Int'l v. Velto,

525 F.2d 432, 436 (9th Cir. 1975); American Loan Corp. v. California

Commercial Corp., 211 Cal. App. 2d 515, 524 (1963). Here, the Court

finds there is no reasonable basis.

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O2 Micro asserts that Dr. Lin, as an officer of O2 Micro, can

testify concerning the value of O2 Micro's assets, including its

trade secrets. Trial Tr. 159. O2 Micro argues that the jury

therefore could have relied on Dr. Lin's testimony to determine that

the value of Trade Secret 1 was seventy-five percent of the value of

all asserted trade secrets, which would explain why the jury awarded

$12 million in unjust enrichment damages for misappropriation of

Trade Secret 1, and not the entire $16 million discussed by Mr.

Meyer. This argument, however, fails: Dr. Lin never testified that

Trade Secret 1 was worth seventy-five to ninety percent of the

monetary value of the all other trade secrets. 

When counsel for O2 Micro asked Dr. Lin what value he would put

on the transformer information in comparison to the other alleged

trade secrets, MPS' counsel objected as calling for expert

testimony. After O2 Micro's counsel assured the Court that it was

looking for "just his assessment of importance, not a dollar value,"

Dr. Lin responded: "Transformer could be the heart of the inverter

module. If you want to quantify it, could be 80 percent, 90

percent, 75 percent? Could be up there." Trial Tr. 284: 1-12. 

Dr. Lin's testimony does not provide a reasonable basis for the

jury to apportion damages. He did not state that Trade Secret 1 is

worth seventy-five to ninety percent of monetary value of all the

trade secrets, nor can that be inferred from his testimony. Even if

Dr. Lin stated that Trade Secret 1 was worth seventy-five percent of

all the trade secrets, that describes only what it is worth to O2

Micro. It does not provide a reasonable basis for the jury to

determine the amount that MPS was unjustly enriched based upon its

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misappropriation of Trade Secret 1. 

The additional testimony of other witnesses regarding the great

importance of transformers also fails to provide the necessary

reasonable basis for the jury to apportion unjust enrichment

damages. MPS employee Mr. Shannon testified that the transformer is

the "single largest component in an inverter," and that getting a

good transformer design was important to MPS and its customers. 

That testimony, even combined with similar testimony from other

witnesses, does not provide a reasonable basis for the jury to award

seventy-five percent of the amount of unjust enrichment damages for

all trade secrets, when it found that MPS misappropriated only five

trade secrets and awarded unjust enrichment damages only for Trade

Secret 1.

After the jury concluded that MPS did not misappropriate all of

O2 Micro's trade secrets, Mr. Meyer's expert testimony regarding

damages for misappropriation of all trade secret was useless to the

jury. The jury was then left without sufficient evidence, or a

reasonable basis, to determine the unjust enrichment damages. Thus,

the jury's award of unjust enrichment damages was based on

speculation and guesswork, not on evidence. The Court grants MPS'

motion for judgment as a matter of law that O2 Micro failed to prove

unjust enrichment damages for misappropriation of Trade Secret 1.

III. Reasonable Royalty

 In light of MPS' challenge to the jury's damages award, O2

Micro requests a reasonable royalty should the Court determine that

unjust enrichment was not proved. California Civil Code § 3426.3(b)

("If neither damages nor unjust enrichment caused by

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4Because the Court has not relied upon the Declaration of Paul

K. Meyer in Response to MPS' Statement on Reasonable Royalty

Damages in its determination of a reasonable royalty, the Court

overrules O2 Micro's objections as moot. 

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misappropriation are provable, the court may order payment of a

reasonable royalty for no longer than the period of time the use

could have been prohibited."). Neither unjust enrichment nor

damages have been proven and the Court will grant O2 Micro a

reasonable royalty.

MPS argues that there is no basis for awarding a reasonable

royalty because it did not use O2 Micro's trade secrets; if the

Court does award a reasonable royalty, MPS asserts that the amount

should not be greater than $128,017.03. But the Court has already

rejected MPS' argument that there was no use, and thus rejects MPS'

argument that there can be no reasonable royalty because MPS did not

use the trade secrets. The Court also rejects, in part, MPS'

argument that O2 Micro's reasonable royalty estimate is plagued with

the same problem as its unjust enrichment damages award, i.e., it is

based on misappropriation of all the trade secrets and not just the

five found by the jury. Mr. Meyer explained during the bench trial,

and noted in his November 5, 2004 expert damages report, that he

determined that the parties in a hypothetical negotiation would

agree to a $900,000 paid-up reasonable royalty for any one group of

trade secrets; he stated that the transformer trade secrets would be

an example of a group of trade secrets.4

The Court has reviewed the factors relevant to a reasonable

royalty determination. See Georgia-Pacific v. United States Plywood

Corp., 318 F. Supp. 1116, 1120 (S.D.N.Y. 1970), modified and aff'd,

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446 F.2d 295 (2d Cir. 1971). And the Court accepts the analysis of

those factors set forth by Mr. Meyer in his explanation of the

$900,000 reasonable royalty figure. 

Mr. Meyer posits a "paid-up royalty," a one-time payment that

allows the licensee to practice the trade secret in the future

without making any more payments. As correctly noted by MPS, the

UTSA provides for a reasonable royalty "for no longer than the

period of time the use could have been prohibited." Cal. Civ. Code

§ 3426.3(b). Thus, MPS argues that, because the trade secret became

public six months after the hypothetical negotiation, it should only

have to pay a fourth of the $900,000, which Mr. Meyer calculated

based on a two-year benefit to MPS. But a paid-up royalty, unlike a

running royalty, cannot be divided. Parties often enter into an

agreement not knowing when the trade secret will become public; it

is something the parties consider, and sometimes risk, during their

negotiations. Bench Trial Tr. 77:8-19; 80:17-81:14. MPS provides

no evidence that it would not have entered into this hypothetical

agreement, or would have paid far less, because it knew that the

trade secret would soon become public. Nor does MPS cite a case

holding that a paid-up reasonable royalty should not be imposed, or

must be divided, if the trade secret becomes public shortly after

the hypothetical negotiation. In sum, the $900,000 reasonable

royalty does not require MPS to pay for longer than the period of

time the use could have been prohibited; instead, it requires MPS to

make a one-time payment while the use was prohibited. Therefore,

the Court grants O2 Micro a reasonable royalty in the amount of

$900,000.

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IV. Exemplary Damages

As noted by O2 Micro, because the jury found that MPS'

misappropriations were willful and malicious, the Court has the

discretion to award exemplary damages. Cal. Civ. Code § 3246.3(c)

("If willful and malicious misappropriation exists, the court may

award exemplary damages in an amount not exceeding twice any award"

of reasonable royalty, or compensatory or unjust enrichment

damages). 

O2 Micro argues that the maximum amount of exemplary damages

should be awarded because the reprehensibility of MPS' conduct is

high; the harm to O2 Micro was great; MPS' financial condition is

such that enhancement of damages is appropriate; and an award of

exemplary damages will punish and deter MPS from future misconduct. 

MPS fails to address O2 Micro's arguments directly. Instead, MPS

argues that the correct UTSA standard for determining exemplary

damages follows patent law. See UTSA § 3 Commissioners' Comment

("This provision follows federal patent law in leaving discretionary

trebling to the judge."). But, as O2 Micro correctly notes, the

Commissioners' Comments only state that, as in patent law, exemplary

damages are for the judge, not jury, to determine. The comments do

not state that patent decisions and standards apply to exemplary

damages under the UTSA; nor do the comments support following patent

law when there are California cases on point. MPS ignores relevant

California cases. It cites a Kansas District Court trade secrets

case, Biocore, Inc. v. Khosrowshahi, 2004 WL 303194 (D. Kan. Feb. 2,

2004), in which the court determined exemplary damages under a nine

factor test commonly considered in patent cases, and a Ninth Circuit

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case, Yeti by Molly, Ltd. v. Deckers Outdoor Corp., 259 F.3d 1101

(9th Cir. 2001), that involved the Montana UTSA. Neither case

addressed the California UTSA. 

Unlike MPS, O2 Micro cites California cases to support its

argument that the proper factors for this Court to consider are the

three announced by the California Supreme Court decades ago and

reiterated by the California Supreme Court more recently in Adams v.

Murakami, 54 Cal.3d 105 (1991). Those factors are (1) the nature of

the misconduct; (2) amount of compensatory damages; and (3) the

defendant's financial condition. Neal v. Farmers Ins. Exchange,

21 Cal.3d 910, 928 (1978); Adams, 54 Cal.3d at 111. In Cloud &

Assocation, Inc. v. Mikesell, 69 Cal. App. 4th 1141 (1999), the

court reversed an award for punitive damages under California Civil

Code section 3426.3(c) because there was no evidence of the

defendant's financial condition as required by Adams and Neal. 

69 Cal. App. 4th at 1151-53. The court rejected the plaintiff's

argument that under the UTSA the financial condition of the

defendant is less of a concern than in other punitive damage cases,

and noted that another court had previously held "the Adams rule

applicable to a case in which the remedies of the UTSA were

applied." Id. at 1151 (citing Vacco Ind., Inc. v. Van Den Berg, 5

Cal. App. 4th 34, 46 n.11 (1992)). Thus, in exercising its

discretion the Court is guided by the three factors found in Neal

and Adams. 

The jury determined that MPS acted willfully and maliciously.

MPS' financial condition is such that it has the ability to pay the

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5

According to MPS' 10-Q filing with the SEC for the period

ending March 31, 2005, MPS has current assets of approximately

$74.6 million and current liabilities of approximately $10.5

million. Trial Ex. 5036. Thus, O2 Micro states that MPS has a net

worth of approximately $63.9 million, or, as stated in SEC

terminology, a "total stockholders' equity" of approximately $63.9

million. Id. MPS' recent press release states that MPS had total

revenues of approximately $22.3 million in the three months ending

June 30, 2005. Trial Ex. 5037.

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maximum in exemplary damages: $1,800,000.5 See Cloud & Assoc., 69

Cal. App. 4th at 1152. 

It is only the second Adams and Neal factor, compensatory

damages, that does not point strongly in the direction of awarding

the maximum possible amount in exemplary damages. Adams, 54 Cal. 3d

at 110; Neal, 21 Cal. 3d at 928. Here, the jury found no

compensatory damages. O2 Micro glosses over this problem by

focusing, not on compensatory damages, but rather on the significant

harm O2 Micro suffered from MPS' misappropriation. O2 Micro argues

that a significant portion of MPS' unjust enrichment was at its

expense and that the evidence shows that it lost significant

business opportunities because of MPS' misappropriation. But the

evidence O2 Micro offers is unconvincing, consisting mostly of the

inquiries O2 Micro received from customers in September, 2000,

regarding its OZ960 product, which inquiries dissipated in December,

2000, after MPS made improvements in its transformer allegedly based

on its access to O2 Micro's confidential information and

confidential demo board. This evidence does not prove that O2 Micro

lost significant business opportunities because of MPS'

misappropriation. The fact remains that the jury found no

compensatory damages. 

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There is no rule, however, mandating that a party show that all

three factors point strongly in favor of an exemplary damage award. 

The decision in Adams focused almost exclusively on the financial

condition of the defendant in reviewing whether the court abused its

discretion in granting exemplary damages. O2 Micro should not be

denied exemplary damages because it fails to show compensatory

damages, especially since the UTSA explicitly authorizes exemplary

damages awards of not more than twice the award of a reasonable

royalty or unjust enrichment damages. Therefore, the Court

determines that, based on MPS' financial condition and the jury's

finding of willfulness and maliciousness, exemplary damages are

appropriate. The Court awards $1,800,000, twice the amount of the

reasonable royalty. 

V. Attorneys' Fees

O2 Micro argues that because the jury found that MPS'

misappropriation was willful and malicious, it is entitled to

attorneys' fees under the California UTSA. California Civil Code

section 3426.4 provides, "If a claim of misappropriation is made in

bad faith, a motion to terminate an injunction is made or resisted

in bad faith, or willful and malicious misappropriation exists, the

court may award reasonable attorney's fees to the prevailing party."

The UTSA does not define bad faith. As noted in Gemini Aluminum

Corp. v. California Custom Shapes, Inc., 95 Cal. App. 4th 1249, 1261

(2002), it is generally recognized that the purpose of the statute

is to deter specious misappropriation actions. In order to be

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deterrable, a trade secret misappropriation claim must involve

conduct more culpable than negligence; it must be "at least reckless

or grossly negligent, if not intentional and willful." Stilwell

Dev., Inc. v. Chen, 11 U.S.P.Q. 2d (BNA) 1328, 1330 (C.D. Cal.

1989). 

But, as noted by MPS, attorneys' fees are not mandatory even if

the jury finds willful and malicious misappropriation. See Cal.

Civ. Code § 3426.4 ("the court may award reasonable attorney's

fees") (emphasis added). MPS asserts that O2 Micro's frequent

alteration of its trade secret claims weighs against a fee award. 

And if the Court considers a fee award, MPS requests a reciprocal

award under section 3426.4 based on the fees it incurred defending

the chip design claims the jury rejected (claims 2-7). O2 Micro

argues that MPS' reciprocal fee request should be denied because it

failed to provide proper notice and because there is no showing of

bad faith on O2 Micro's part. 

The Court concludes that, because of the purpose of the

statute, the behavior of the parties during this litigation and the

exemplary damages awarded, neither party will be awarded attorneys'

fees under the California UTSA. 

VI. Patent Issues

A. Findings of Fact and Conclusions of Law on Inequitable

Conduct

 O2 Micro asserts that the '814 and '881 patents are

unenforceable based on MPS' inequitable conduct. Patent applicants

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and their legal representatives have a duty to prosecute

applications with candor and good faith. Molins PLC v. Textron,

Inc., 48 F.3d 1172, 1178 (Fed. Cir. 1995); 37 C.F.R. § 1.56(a). 

O2 Micro contends that MPS breached that duty by failing to disclose

an August, 1994, article by Melvin C. Cosby, Jr. and R.M. Nelms,

entitled "A Resonant Inverter for Electronic Ballast Applications" 

(Cosby/Nelms article). Trial Ex. 69.

A breach of the duty to prosecute patents in good faith occurs

when an individual associated with filing and prosecuting a patent

application fails to disclose material information with an intent to

deceive. Union Pac. Res. Co. v. Chesapeake Energy Corp., 236 F.3d

684, 693 (Fed. Cir. 2001). Proof of inequitable conduct entails a

two-step analysis. The court must first determine "whether the

withheld references satisfy a threshold level of materiality," and

next "whether the applicant's conduct satisfies a threshold finding

of intent to mislead." Halliburton Co. v. Schlumberger Tech. Corp.,

925 F.2d 1435, 1439 (Fed. Cir. 1991). Both materiality and culpable

conduct are questions of fact, and "each must be proved by clear and

convincing evidence." Goodyear Tire & Rubber Co. v. Hercules Tire &

Rubber Co., 162 F.3d 1113, 1122 (Fed. Cir. 1998). Assuming

satisfaction of both thresholds, the court balances materiality and

intent to determine whether the applicant's conduct is so culpable

that the patent should be held to be unenforceable; the "more

material the omission, the less culpable the intent required, and

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6"A prima facie case of unpatentability is established when

the information compels a conclusion that a claim is unpatentable

under the preponderance of evidence, burden-of-proof standard,

giving each term in the claim its broadest reasonable construction

consistent with the specification, and before any consideration is

given to evidence which may be submitted in an attempt to establish

a contrary conclusion of patentability." 37 C.F.R. § 1.56. 

30

vice versa." Halliburton, 925 F.2d at 1439. 

1. Materiality

O2 Micro contends that the Cosby/Nelms article was highly

material and that it clearly anticipated and/or rendered obvious the

asserted claims of the '814 and '881 patents. MPS argues that the

article was not material, correctly noting that inventors have no

obligation to disclose otherwise material references if that

information is cumulative or less material than references already

before the patent examiner. Halliburton, 925 F.2d at 1440. MPS

further asserts that the Cosby/Nelms article fails to disclose

several elements required to qualify as anticipating prior art.

In determining materiality, courts "have consistently referred

to the definition provided in 37 C.F.R. § 1.56." Bruno Indep.

Living Aids, Inc. v. Acorn Mobility Servs., Ltd., 394 F.3d 1348,

1352 (Fed. Cir. 2005). Title 37 C.F.R. section 1.56 provides that: 

information is material to patentability when it is not

cumulative to information already of record or being

made of record in the application, and

(1) It establishes, by itself or in combination with 

other information, a prima facie case6 of 

unpatentability of a claim; or

(2) It refutes, or is inconsistent with, a position the 

 applicant takes in:

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7Claim 1 reads as follows:

An apparatus for efficiently converting a direct current

(DC) signal into an alternating current (AC) signal for

driving a load, comprising: 

 (a) an H-bridge network of a plurality of switches for

generating an AC signal from a DC signal coupled to

the network of the plurality of switches, the AC

signal being generated by a first portion of the

network of the plurality of switches periodically

opening and closing opposite to the periodic

opening and closing of a second portion of the

network of the plurality of switches, said first

portion of the network being diagonally opposed to

said second portion of the network; 

 (b) a tank circuit being coupled between the network of

the plurality of switches and the load, the tank

circuit filtering the AC signal delivered to the

load; and 

31

(i) Opposing an argument of unpatentability relied 

 on by the Office, or

(ii) Asserting an argument of patentability.

Materiality of a reference is analyzed, not in a vacuum, but upon

the overall degree of similarity between the omitted reference and

the claimed invention in light of other prior art before the

examiner. Baxter Int'l, Inc. v. McGaw, Inc., 149 F.3d 1321, 1328

(Fed. Cir. 1998).

O2 Micro argues that it established at trial a prima facie

case of unpatentability of both patents based on the Cosby/Nelms

article, which it notes was published more than four years before

the application for the '814 patent, and thus that the article is

highly material. To support this argument, O2 Micro points to

Dr. Erickson's testimony that every element of claim 17 of the

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 (c) a controller for periodically opening and 

closing portions of the network of the plurality of

switches based on a resonant frequency of the tank

circuit, so that the optimal amount of electrical

power is provided for driving the load under a

range of voltages provided by the DC signal. 

8

Claim 10 reads as follows:

The apparatus of claim 8, wherein the opposite waveforms

for each power phase have a symmetrical shape so that

the formation of a harmonic signal in the AC signal is

suppressed.

Claim 8 reads as follows:

Apparatus for efficiently converting a direct current (DC)

signal into an alternating current (AC) signal for driving

a load, comprising: 

 (a) a network of a plurality of switches for generating

an AC signal from a DC signal coupled to the

network of the plurality of switches, the AC signal

being generated by a portion of the network of the

plurality of switches periodically opening and

closing opposite to the periodic opening and

closing of another portion of the network of the

plurality of switches; 

 (b) a tank circuit being coupled between the network of

the plurality of switches and the load, the tank

circuit filtering the AC signal delivered to the

load; and 

 (c) a controller for periodically opening and closing

portions of the network of the plurality of

switches based on a resonant frequency of the tank

circuit, so that the optimal amount of electrical

power is provided for driving the load under a

range of voltages provided by the DC signal,

wherein the periodic opening and closing of

portions of the network of the plurality of

switches is based on a resonant frequency of the

tank circuit, further comprising a power phase for

the portion of the network of the plurality of

switches and another power phase for the other

portion of the network of the plurality of

switches, so that each power phase generates an

opposite waveform of the AC signal used to drive

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'881 patent and claim 108 of the '814 patent was disclosed by the

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the load.

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Cosby/Nelms article. Trial Tr. 949-69, 1905-6. O2 Micro

correctly notes that inequitable conduct with respect to one

claim renders the entire patent unenforceable. Baxter, 149 F.3d

at 1332. 

MPS responds by detailing the elements of the asserted claims

that the Cosby/Nelms article purportedly does not address, i.e.,

optimal power, range of DC voltages and operation of a full-bridge

circuit.

First, MPS asserts that nothing in the article discusses the

concept of "optimal power," nor how to achieve it, noting that all

of the claims of the patents require that the optimal amount of

electrical power is provided for driving the load. See '814 patent

at 30:1-3 (claims 8 and 10); '881 patent at 28:2-3 (claim 1). To

maintain "optimal power" to the CCFL, some method of regulation or

power feedback circuitry is required. Bench Trial Tr. at 21:24-

22:7. But according to the testimony offered by Professor Nelms,

co-author of the article, the circuit that he described in his

article lacked the necessary regulation or power feedback

circuitry: the circuit did not have any feedback mechanism to vary

the brightness or maintain a consistent brightness once the cathode

fluorescent light was turned on. Trial Tr. 1442:8-25. Professor

Nelms testified that his article did not discuss any type of

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feedback circuitry. Id. at 1444:1-5. And even O2 Micro's expert

Dr. Erickson stated that the article "mention[ed] a control chip"

that had "circuitry for building a feedback loop included. But

[the article] gives no more detail -- you know, no details about

what [it] was." Id. at 1041:10-23. 

O2 Micro replies that the Cosby/Nelms article does disclose

optimal power, arguing that the trial record shows that the article

discloses a controller that opens and closes the switches so that

the optimal amount of electrical power is provided for driving the

load under a range of voltages provided by the DC signal. The

trial record cited includes the Cosby/Nelms article and testimony

by Dr. Erickson, O2 Micro's expert. Dr. Erickson testified that

the controller discussed in the Cosby/Nelms article had feedback

circuitry "where it can sense what the output is, like the output

voltage of the output current and then adjust the switching to

maintain the output to be a desired level." Trial Tr. 956:15-

957:13. O2 Micro notes that the article need not use the same

words used in the MPS patents to support anticipation, or

materiality. But the testimony of Dr. Erickson cited by O2 Micro

regarding feedback circuitry and "desired level" is not the same as

this Court's definition of the term "the optimal amount of

electrical power is provided for driving during the load." The

Court defined that term as "the least amount of electrical power

that results in a regulated amount of current to drive the load at

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the requested level of brightness." November 26, 2001 Order

Construing Disputed Claims and Terms. Dr. Erickson's testimony

does not address minimal power. Nor does the article discuss the

least amount of power resulting in a regulated amount of current to

drive a load at the requested level of brightness. 

The second point that MPS asserts is not disclosed in the

Cosby/Nelms article is a "range of DC voltages." MPS notes that

all of the asserted claims require that optimal power be provided

over a range of direct current (DC) voltages. As MPS points out,

there is no mention of a range of DC voltages in the Cosby/Nelms

article. Professor Nelms testified that the direct current used by

the Cosby/Nelms circuit was fixed at a constant eighty-five volts

and that he did not vary the DC voltage or measure any variance in

the eighty-five volts. Trial Tr. 1441:25-1442:8. 

O2 Micro, however, replies that the article does disclose a

range of DC voltages and states that Dr. Erickson explained that

the DC source used in the article was derived from a 120 volt

utility line, which inherently varies between 108 and 132 volts. 

But that is a misstatement of Dr. Erickson's testimony. Rather, he

stated that "what you get from the utility is -- isn't always a

perfect 120 volt. It has variation. How much the variation is

depends on where you are in the world, but in the United States,

it's normally plus or minus ten percent." Trial Tr. at 960:25-

961:4. This testimony does not explain whether the variation in

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question, not disclosed in the article but allegedly inherent

nonetheless, falls within this plus or minus ten percent. And, as

MPS correctly notes, Dr. Erickson's testimony is directly

contradicted by Professor Nelms who stated that the variac he used

in his laboratory did not vary by as much as plus or minus ten

percent once it was set to a fixed voltage and that as far as he

was aware the voltage did not vary. Trial Tr. 1441:15-1442:5.

Third, MPS asserts that the Cosby/Nelms article mentions a

full-bridge circuit only once and that the article does not contain

any enabling disclosure of the operation of a full-bridge circuit,

which is required for all claims. Professor Nelms testified that,

while the article listed full-bridge as one of the three

topologies, they pursued only the half-bridge, and not the fullbridge or push-pull circuit. Id. at 1440:2-15. O2 Micro replies

that it submitted evidence that the Cosby/Nelms article did

disclose and enable a full-bridge and points to Dr. Erickson's

testimony and illustration at trial. Trial Tr. 952:24-955:14;

Trial Ex. 5020. O2 Micro also points to the illustration of a

full-bridge in the Cosby thesis. Trial. Ex. 3280. The Cosby

thesis, however, contains illustrations of the three possible

inverter topologies: push-pull, full-bridge and half-bridge. Id.

at 4. It states that, although "any of the above topologies could

be made to work" with suitable design, "the half-bridge was chosen

because the high power capabilities of the full-bridge were not

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needed, and a transformer is not needed as in the push-pull." Id.

at 5. The Cosby/Nelms article teaches away from using a

transformer. Trial Ex. 69 at 424; Trial Tr. 1443:11-20. The Court

finds that the Cosby/Nelms article does not contain an enabling

disclosure of a full-bridge circuit. 

In addition, MPS correctly notes that, although the article

discloses a square wave which O2 Micro states is a symmetrical wave

form, the Cosby/Nelms article does not anticipate claim 10 of '814

patent because the claim element is more than just a symmetric

signal. Rather, it requires a full-bridge operating in power

phases to generate opposite waveforms of a symmetric shape, which

the Cosby/Nelms article does not discuss.

In addition to the fact that the Cosby/Nelms article does not

address essential elements of the asserted claims, as discussed

above, MPS further notes that the face page and file history of the

'814 and '881 patents show that the examiner considered an

extensive collection of prior art. Specifically, the examiner

considered five U.S. patent references and one non-patent reference

for the '814 patent and over forty U.S. patent references and

eleven non-patent references for the '881 patent. The patents also

disclosed prior art, including a half-bridge inverter circuit and a

description of an inductive mode half-bridge (IMHB) circuit for

driving a CCFL. O2 Micro contends that this prior art of record,

however, is not cumulative of, or more material than, the

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Cosby/Nelms article. It notes that John Shannon, one of the named

inventors, testified that the disclosure of the IMHB circuit was

not the same as the disclosure in the Cosby/Nelms article. See

Trial Tr. at 621:2-3, 636:15-17. Mr. Shannon, however, also

testified that the functionality of the Cosby/Nelms circuit and the

IMHB circuit was the same and that the two circuits were "extremely

similar." Trial Tr. at 621:6-8, 636:14. O2 Micro further contends

that the Cosby/Nelms article discloses the use of a full-bridge,

unlike the IMHB, which is a half-bridge circuit. But, as discussed

above, the Court finds that the Cosby/Nelms article does not

contain an enabling disclosure of a full-bridge circuit. 

O2 Micro provides evidence that the Cosby/Nelms article is

material. But materiality must be proven by clear and convincing

evidence. And in light of Professor Nelm's credible testimony

explaining the article he co-authored, O2 Micro fails to provide

such clear and convincing evidence. Thus, the Court finds that the

Cosby/Nelms article fails to satisfy the threshold level of

materiality. Nonetheless, the Court also considers whether there

is clear and convincing evidence that MPS, and specifically Mr.

Moyer, intended to deceive the PTO. 

2. Intent

O2 Micro argues that the Court should find that Mr. Moyer, a

co-inventor of the patents, acted deliberately and with culpable

intent in failing to disclose the Cosby/Nelms article to the patent

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examiner. In a case such as this one, involving an omission of an

arguably material reference to the patent examiner, there must be

clear and convincing evidence that the applicant made a deliberate

decision to withhold a known material reference. Baxter, 149 F.3d

at 1329. O2 Micro correctly notes that because intent can rarely

be proven by direct evidence, "intent to deceive is generally

inferred from the facts and circumstances surrounding a knowing

failure to disclose material information." Bruno Indep. Living,

394 F.3d at 1354. But a finding of deceptive intent cannot be

based on mere negligence, even gross negligence. Halliburton, 925

F.2d at 1442. And "a mere showing that references having some

degree of materiality were not disclosed does not establish

inequitable conduct." Id. Instead, a finding of intent to deceive

requires that there be conduct that, when viewed in light of all

the evidence, including evidence indicative of good faith,

indicates sufficient culpability. Hebert v. Lisle Corp., 99 F.3d

1109, 1116 (Fed. Cir. 1996).

In order to find such culpability, O2 Micro asks the Court to

infer intent based on several facts. First, O2 Micro states that

Mr. Moyer had the article during the prosecution of the '814 and

'881 patents. But even that "fact" is based on inferences that are

not clearly supported by the record. The only fact clearly

supported by the record is that Mr. Moyer had the first page of the

article in his possession in the spring of 2001 when he handed a

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folder of documents labeled "CCFL Patent" to his attorneys; in that

folder was the first page of the Cosby/Nelms article. Trial Exs.

4157, 5003. O2 Micro wants the Court to infer that Mr. Moyer had

the first page of the article during the '814 patent prosecution

because most of the other documents in that folder relate to the

'814 patent. Trial Ex. 5033. But also within the folder was a

February 13, 2001 facsimile discussing document collection for this

lawsuit and a copy of the '814 patent issued September 5, 2000. Id. 

O2 Micro contends that MPS' privilege log also shows that the

front page of the article was in Mr. Moyer's patent prosecution

folder during the '881 and '814 patent. The first page of the

Cosby/Nelms article originally appeared on MPS' privilege log as

"First page of an article given to Jim Moyer by one of MPS'

attorneys during prosecution of patent." Trial Ex. 394, p.1. But

in an interrogatory, MPS stated that Mr. Moyer never said that the

first page of the article was given to him by a lawyer; he merely

said that he found it in the CCFL Patent folder and did not

recognize it. Trial Ex. 5007, p.8. Because it was found with

communications between MPS and its patent counsel, Mr. Moyer thought

that "the first page of the Cosby article could have been given to

him by one of MPS' patent prosecution attorneys, but that he did not

actually remember from where he had obtained it." Id. MPS

acknowledges that it made a mistake by including this page in its

privilege log, and the Court does not find, as O2 Micro urges, that

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MPS is "judicially estopped" from admitting that it made a mistake. 

Mr. Moyer testified that he does not remember seeing the article

prior to 2003, and he does not know how or when it came into his

possession. Bench Trial Tr. 16:17-23; 41:10-13. 

Other facts O2 Micro lists as supporting a finding of intent to

deceive are (1) that despite its purported high materiality, the

article was not disclosed to the Patent Office; (2) that, as noted

above, the first page was found in a folder labeled "CCFL Patent"

where Mr. Moyer kept other documents from prosecution of the '814

patent, Bench Trial Tr. 9:3-24; (3) that once the front page of the

Cosby/Nelms article was disclosed MPS attempted to obstruct and

delay its discovery by labeling it a privileged document; and

(4) that Mr. Moyer now "conveniently" can't recall the underlying

events relating to the first page of the Cosby/Nelms article.

Even assuming that Mr. Moyer had the article in his folder

during the prosecution of both patents, that fact does not provide

clear and convincing evidence of intent to deceive. At most it

illustrates gross negligence on the part of Mr. Moyer and MPS, and

the Court will not infer a higher level of culpability. See Baxter,

149 F.3d at 1329 ("mere gross negligence is insufficient to justify

an inference of an intent to deceive the PTO"). Nor, as MPS

correctly notes, does the alleged materiality of information itself

provide clear and convincing evidence of intent to deceive. See

Halliburton, 925 F.2d at 1440 (intent cannot be presumed from a

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showing of materiality). Furthermore, MPS correctly notes that

evidence indicative of good faith must be considered when

determining intent to deceive. Mr. Moyer testified that if he

placed himself back at the time of the prosecution of the patents,

he would not have disclosed the Cosby/Nelms article to the PTO

because he believes it is cumulative of other references and of the

inductive mode half bridge device the inventors cited as prior art

in their patent application. Bench Trial Tr. 41:20-42:6. That

testimony, in light of his testimony regarding what he perceived to

be the differences between the patents and the Cosby/Nelms article

and what information was already disclosed in other references

before the patent examiner, is credible and reasonable.

Even accepting all of O2 Micro's inferences as fact, the Court

finds that it has failed to present clear and convincing evidence

that Mr. Moyer formed a culpable intent to withhold the Cosby/Nelms

article from the patent examiner during the prosecution of either

patent.

3. Balancing

Because O2 Micro fails to present clear and convincing evidence

to meet the threshold for materiality or for intent to deceive, no

balancing of materiality and intent can be undertaken to "determine

whether the equities warrant a conclusion that the patentee has

engaged in inequitable conduct." Hoffmann-La Roche, Inc. v. Promega

Corp., 323 F.3d 1354, 1359 (Fed. Cir. 2003). 

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In sum, the Court concludes that O2 Micro has failed to meet

its burden to provide clear and convincing evidence that the

Cosby/Nelms article meets the threshold of materiality or intent to

deceive.

B. Exceptional Case and Attorneys' Fees

O2 Micro argues that it should be awarded reasonable attorneys'

fees under Title 35 U.S.C. section 285, which provides that in

exceptional patent cases courts "may award reasonable attorney fees

to the prevailing party." This attorneys' fees request is in

addition to O2 Micro's request for attorneys' fees under the

California UTSA. Its argument that this is an exceptional case is

largely based upon the alleged inequitable conduct of MPS. However,

the Court does not find that MPS engaged in inequitable conduct.

O2 Micro further argues that MPS' misconduct during the

litigation, by itself, may warrant a finding that this is an

exceptional case. But the cases O2 Micro cites do not support that

argument. In A.B. Chance Co. v. RTE Corp., 854 F.2d 1307, 1313

(Fed. Cir. 1988), the court ruled that the district court needed to

decide whether the party engaged in inequitable conduct before it

denied exceptional case status and hence attorneys' fees to the

moving party. In Cambridge Products, Ltd. v. Penn Nutrients, Inc.,

962 F.2d 1048, 1050-51 (Fed. Cir. 1992), the court found that the

exceptional nature of the case must be established by clear and

convincing evidence, explaining that “exceptional cases” are

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normally those of bad faith litigation or those involving fraud or

inequitable conduct by the patentee in procuring the patent. Like

the moving party in Cambridge Products, O2 Micro fails to establish

by clear and convincing evidence that this is an exceptional case

under section 285 or that MPS pursued this litigation in bad faith. 

Id. at 1051. Thus, the Court finds that this is not an exceptional

case under section 285 and does not award attorneys' fees.

C. MPS' Motion Regarding Advisory Jury Verdict

MPS argues that, based on a recent Federal Circuit case, the

Court should treat the jury verdict regarding the patent issues as

advisory. See In re Technology Licensing Corp., 423 F.3d 1286 (Fed.

Cir. 2005) (holding that a patentee seeking only injunctive relief

on its infringement counterclaim has no right to a jury trial,

regardless of whether the accused infringer asserts invalidity as a

defense). That case, however, does not give this Court the power to

transform a jury verdict into an advisory finding after the verdict

is returned. The Ninth Circuit has not addressed precisely this

issue. But, as stated by the Sixth Circuit, 

The parties are entitled to know prior to trial whether

the jury or the court will be the trier of fact. 

Pradier v. Elespuru, 641 F.2d 808, 811 (9th Cir. 1981). 

This conclusion follows from the language of Rule 39(c),

which permits the district court to try a case "with an 

advisory jury," not to have the case tried by a jury and

essentially exercise a veto power. 

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9Federal Rule of Civil Procedure 39(c) provides, 

In all actions not triable of right by a jury the court

upon motion or of its own initiative may try any issue

with an advisory jury or, except in actions against the

United States when a statute of the United States

provides for trial without a jury, the court, with the

consent of both parties, may order a trial with a jury

whose verdict has the same effect as if trial by jury

had been a matter of right.

10Although Lockwood was vacated, the Federal Circuit continues

to find its reasoning pertinent. Tegal Corp. v. Tokyo Electron

Am., Inc., 257 F.3d 1331, 1340 (Fed. Cir. 2001).

45

Thompson v. Parkes, 963 F.2d 885, 890 (6th Cir. 1992).9

Furthermore, O2 Micro correctly notes that the circumstances of

this case are distinguishable from In re Technology Licensing Corp.,

where the patentee voluntarily and permanently abandoned its damages

claim after an adverse court ruling that dramatically limited its

damages. Here, like in In re Lockwood, 50 F.3d 966 (Fed. Cir.

1995), vacated on other grounds, 515 U.S. 1182 (1995),10 MPS, the

patentee, did not elect to limit itself to an equitable remedy. 

Unlike the patentee in In re Technology Corp., MPS did not forfeit

its "right to a jury trial by taking any steps that would have

required" it, historically, to file its case in equity. 423 F.3d at

1289. Rather, the Court ruled that MPS lacked evidence of damages

and granted O2 Micro's motion for summary adjudication on that

issue. 

The Court will not and cannot treat the jury's verdict

regarding the patent issues as advisory.

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11The Court also DENIES as moot O2 Micro's Motion to Strike

Portions of MPS' Opposition to O2 Micro's Post-Trial Brief on

Equitable Issue and the Declarations of Steven Baik and Dalson Wu

in Support of Same (Docket No. 1188). The Court did not rely on

the declaration of Dalson Wu, paragraph twenty-two of Mr. Baik's

declaration regarding the alleged "expert testimony," paragraph

twenty-three of Mr. Baik's declaration regarding mistakenly listing

the first page of the Cosby/Nelms article on the privilege log, Mr.

Moyer's deposition testimony or Dr. Brockhurt's supplemental

rebuttal expert report. The Court did not consider the attorneys'

arguments as evidence. Thus, the Court will not strike MPS'

attorneys' arguments regarding inequitable conduct or MPS'

attorneys' arguments that are contrary to the jury verdict. 

Furthermore, to the extent that the Court relies upon evidence

presented by O2 Micro in its proposed findings of fact and

conclusions of law, MPS' objections are overruled. To the extent

the Court does not rely on such evidence, MPS' objections are moot.

46

CONCLUSION

For the foregoing reasons, the Court DENIES O2 Micro's request

for injunctive relief (Docket Nos. 1166 [Public Version], 1167

[Filed Under Seal]).11 The Court DENIES in part and GRANTS in part

MPS' motion for judgment as a matter of law (Docket No. 1163). The

Court GRANTS judgment as a matter of law that the award of unjust

enrichment damages was not based on evidence presented at trial, but

DENIES judgment as a matter of law that O2 Micro failed to prove use

of Trade Secrets 1, 8, 9, 10 and 11. The Court GRANTS O2 Micro's

request for a reasonable royalty and exemplary damages, but DENIES

O2 Micro's request for attorneys' fees under the UTSA (Docket

Nos. 1166 [Public Version], 1167 [Filed Under Seal]). The Court

finds and concludes that O2 Micro failed to show by clear and

convincing evidence that MPS engaged in inequitable conduct. The

Court further finds that this is not an exceptional patent case and

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thus DENIES attorneys' fees under Title 35 U.S.C. section 285. The

Court DENIES MPS' motion requesting that, as to the patent issues,

the jury verdict be treated as advisory (Docket No. 1215).

IT IS SO ORDERED.

Dated: 11/10/05

 

CLAUDIA WILKEN

United States District Judge

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48

UNITED STATES DISTRICT COURT

FOR THE 

NORTHERN DISTRICT OF CALIFORNIA

O2 Micro Intl.,

Plaintiff,

 v.

Monolithic Power,

Defendant.

 /

Case Number: CV00-04071 CW 

CERTIFICATE OF SERVICE

I, the undersigned, hereby certify that I am an employee in the Office of the Clerk, U.S. District

Court, Northern District of California.

That on November 10, 2005, I SERVED a true and correct copy(ies) of the attached, by placing

said copy(ies) in a postage paid envelope addressed to the person(s) hereinafter listed, by

depositing said envelope in the U.S. Mail, or by placing said copy(ies) into an inter-office delivery

receptacle located in the Clerk's office.

Charlene M. Morrow

Fenwick & West LLP

801 California Street

Mountain View, CA 94041-2008

Daniel Johnson

Morgan Lewis & Bockius LLP

One Market St.

Spear Street Tower

San Francisco, CA 94105-1126

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49

Duane H. Mathiowetz

Howrey Simon Arnold & White LLP

525 Market Street

Suite 3600

San Francisco, CA 94105-2708

Michael Barclay

Wilson Sonsini Goodrich & Rosati

650 Page Mill Road

Palo Alto, CA 94304-1050

Dated: November 10, 2005

Richard W. Wieking, Clerk

By: Sheilah Cahill, Deputy Clerk

Case 4:00-cv-04071-CW Document 1240 Filed 11/10/05 Page 49 of 49