3 minute read | October.15.2014
We’ve written previously about how intellectual property owners can obtain both patent and trade secret protection in the same technology. A case out of the Federal Circuit illustrates that IP holders sometimes choose to assert both in the same action – including, notably, in actions before the International Trade Commission (“ITC”).
Last month, in uPI Semiconductor Corp. v. ITC the Federal Circuit affirmed a finding that a defendant in a mixed patent infringement/trade secret action violated an earlier consent order. The court found the defendant had aided and abetted its customers in importing products incorporating electrical controllers that the defendant had previously stipulated both infringed the complainant’s patents and incorporated the complainant’s trade secrets. However, the Court of Appeals went further, and also ruled that additional controllers developed by the defendant after the entry of the consent order continued to unlawfully incorporate the complainant’s trade secrets, and therefore also would be subject to an exclusion order barring their entry into the United States.
uPI Semiconductor involved two competitors, uPI (the defendant) and Richtek (the complainant), which both design and sell DC-to-DC controllers that convert direct current from one voltage to another. These are commonly used in chips installed in devices such as computer motherboards.
Former Richtek employees founded uPI, and in an earlier action Richtek asserted that uPI misappropriated Richtek’s trade secrets and infringed Richtek’s U.S. patents in producing its products. That earlier action was concluded after the ITC entered a consent order under which uPI agreed to cease importation of all products produced using Richtek’s trade secrets or infringing its patents. Nonetheless, a year later, uPI filed an enforcement complaint alleging that Richtek continued to aid and abet its own customers in importing devices containing the same DC-to-DC controllers as were subject to the consent order. The Commission found that despite a five-month lag time before they appeared in the United States, Richtek’s “upstream” sales of these DC-to-DC controllers continued to enter the United States through “downstream” sales by its customers. The Federal Circuit concluded that substantial evidence supported the Commission’s finding that all sales of Richtek’s DC-to-DC controllers after five months violated the earlier consent order, so as to subject Richtek to a monetary penalty.
Richtek, however, cross-appealed a separate ruling by the Commission that exonerated uPI for its importation of DC-to-DC controllers developed after the entry of the original consent order. The Commission had concluded that these later developed DC-to-DC controllers did not violate Richtek’s trade secrets because they supposedly were independently developed utilizing proper “clean room” procedures. The Federal Circuit disagreed, first noting that even the Commission agreed that a sufficient number of similarities existed between the schematics, layouts, and design files of uPI’s earlier DC-to-DC controllers and Richtek’s products to conclude that misappropriation had occurred. The Federal Circuit further found that the Commission improperly ignored substantial evidence that extraneous markings and notations in uPI’s design documents for the new DC-to-DC controllers were lifted directly from Richtek’s trade secrets. Accordingly, the Federal Circuit overturned the Commission’s ruling that the new DC-to-DC controllers did not also violate the Consent Order, and remanded the action to the ITC for a further determination of what remedy Richtek should receive as a result of such misappropriation of trade secrets.
It’s not every day you see an ITC action rooted firmly in trade secrets issues, and it’s even rarer to see a Court of Appeals rule that the Commission abused its discretion by not finding misappropriation.
This case is a reminder that some intellectual property owners elect to protect IP in both patents and trade secrets, while others may choose to go solely one route versus the other. The first step, of course, is deciding whether to maintain secrecy or obtain a patent. That will depend largely on the idea and the type of business. Below are some pros and cons that should be considered in making that decision: