[00:00:00] Speaker 03: We have four arguments this morning, of which the first is face number 222185, AMS against Renaissance. [00:00:13] Speaker 03: Mr. Lloyd. [00:00:14] Speaker 01: May it please the court. [00:00:16] Speaker 01: In the first appeal, this court rejected an award of $77 million as unsupported on the law and the facts, and recognized that upwards of 90% of inter-sales sales that were included in that award [00:00:29] Speaker 01: would likely need to be excluded. [00:00:31] Speaker 01: Yet after a new trial on damages, Intersil still requests almost the entirety of what it was previously denied, now asking for an award of $63 million. [00:00:41] Speaker 01: For multiple independent reasons, including many that this court already decided in the first appeal, the law and the facts still foreclose such an award. [00:00:49] Speaker 01: Unless the court has a different preference, I'd like to start with the trade secret issues on proper accessibility and the head start. [00:00:56] Speaker 03: So can I ask, suppose the file, and there's, as you know, a lot of different issues in play. [00:01:03] Speaker 03: And part of the task is to figure out how they relate to each other and what would need to be done on remand, if anything. [00:01:12] Speaker 03: So suppose we agreed with you that the, I guess, the starting date for the head start period was January or February of 2005, not January of 2006. [00:01:24] Speaker 03: And just on that, is it going to matter if we're not precise about the date? [00:01:29] Speaker 03: Or is there going to be a giant costly fight if we don't specify a date? [00:01:35] Speaker 03: And if we can specify a date, what date should we say? [00:01:38] Speaker 01: Yeah, let me take that in parts. [00:01:40] Speaker 01: I think in the blue brief, we said that if the court adopted a date of February 2005. [00:01:45] Speaker 02: That's not a date. [00:01:46] Speaker 02: That's a whole month. [00:01:47] Speaker 01: Sorry. [00:01:47] Speaker 02: I mean, the amount of squabbling about things, I would like to reduce that. [00:01:52] Speaker 01: I think our position was you could take it as February 28th of, or that's not a leap year, so yes, February 28th of 2005. [00:02:00] Speaker 01: We said in the blue brief that if that were the proper accessibility date, then Interseal would not be entitled to any disgorgement of profits. [00:02:09] Speaker 01: nor exemplary damages. [00:02:10] Speaker 01: And the red brief did not contest that. [00:02:12] Speaker 01: Right. [00:02:12] Speaker 03: So now I'm going to just, when I say February now, I'm going to mean February 28th unless I hear differently from the other side. [00:02:19] Speaker 03: Suppose we agreed with you on that, that we agreed with the district court that 26 months is the right period that we've called the head start period, which is just the period for cleansing the [00:02:32] Speaker 03: wrong of its effects. [00:02:34] Speaker 03: And so we now have an April 28, 2007 ending period for activities that produce sales. [00:02:47] Speaker 03: Assume also that some or all of the iPod sales that were a result of the November 2006 competition, I know sometimes it's called the design win, but I'm not sure that matters, are corrupted sales, the result of a wrong. [00:03:10] Speaker 03: What is left to be [00:03:14] Speaker 03: Is there anything left to be decided on remand, putting aside exemplary damages and prejudgment interest in the attorney's face? [00:03:22] Speaker 01: So I would, of course, like the chance to contest some of those assumptions. [00:03:28] Speaker 01: But I think the other side has forfeited any request for damages based on a proper accessibility date of February 2005. [00:03:42] Speaker 01: We said that they would have no entitlement to disgorgement of profits or exemplary damages if the court agreed with us on that proper accessibility. [00:03:49] Speaker 04: Could you just answer Judge Toronto's question? [00:03:52] Speaker 01: Sorry, Judge. [00:03:53] Speaker 04: Out of that $8.5 million, does anything need to be backed out of that $8.5 million number if the iPhone 3G is out but the iPod touches in? [00:04:08] Speaker 01: So yes, because I think there would still be substantial amounts of sales that would be beyond, even taking all of Judge Toronto's assumptions, beyond the 26 months from February 2005. [00:04:18] Speaker 01: The record does have kind of at least broken out by year. [00:04:23] Speaker 01: I'm not sure if it's broken out by month. [00:04:28] Speaker 03: Are they all iPod touch sales? [00:04:32] Speaker 03: Part of my assumption was I was going to treat all the sales made as a result of the November 2006 design competition on the iPod Touch would be properly recovered for trade secret discourse. [00:04:53] Speaker 03: That was the assumption. [00:04:54] Speaker 01: Yes. [00:04:55] Speaker 01: I think the record does have details breaking out the sales of iPod Touch versus the iPhone 3G. [00:05:02] Speaker 01: to the extent that if I'm understanding the question, those can be separated out in the record that already exists. [00:05:11] Speaker 01: I'm not sure I answered your question. [00:05:13] Speaker 03: I guess I'm still uncertain whether on my assumptions a remand is needed for a calculation. [00:05:19] Speaker 03: Because currently there's no iPhone 3G in the misappropriation award. [00:05:26] Speaker 03: The iPod Touch is in. [00:05:30] Speaker 03: the award is something else in the award that would have to be removed on the assumption that April 2007 is the end of the head start period. [00:05:45] Speaker 01: So I guess maybe let me make sure I'm understanding the court's hypothetical here. [00:05:51] Speaker 01: Is the hypothetical that all of the iPod sales, regardless of when they occurred, would be included in this disgorgement? [00:05:58] Speaker 03: All of them that were the result of [00:06:02] Speaker 03: the necessary predicate of the design approval in November 2006, and that might be all of them, even though I know a lot of those, I don't know, even though I'm assuming that some of those sales post-dated April 2007. [00:06:17] Speaker 01: So I don't think I'm prepared. [00:06:20] Speaker 01: We'd be happy to submit something if the court would like. [00:06:23] Speaker 01: I don't think I'm prepared to address exactly that scenario because the other side has never posited that scenario. [00:06:28] Speaker 04: Well, let me ask this. [00:06:30] Speaker 04: You ought to know, your client was the one that was selling this ISL 29003. [00:06:38] Speaker 04: Were there any 03 sales after April 2007 [00:06:46] Speaker 04: unrelated to the iPhone 3G or the iPod touch. [00:06:53] Speaker 04: Like non-Apple customers, for example. [00:06:56] Speaker 01: Yes, there were zero three sales. [00:06:59] Speaker 04: That are part of the 8.5 million dollar disgorgement award. [00:07:02] Speaker 01: No, my understanding is the 8.5 Discouragement Award is only for sales to Apple. [00:07:09] Speaker 01: Well, I'm not sure, Judge Chen, again, because this has not been the way that this case has been litigated or presented at the district court or on appeal. [00:07:18] Speaker 01: And if I can, just sort of take some of the assumptions in the court's hypothetical. [00:07:25] Speaker 01: I don't think there's any basis for a 26-month head start period here. [00:07:31] Speaker 01: The facts are that when Ingersil made the change to its photodiode in August of 2004, seven months later, in March of 2005, it had products in customers' hands to be sampling. [00:07:45] Speaker 03: And so if you're going to be looking at the... But not the 03. [00:07:50] Speaker 03: And there's certainly evidence that the 01 was an unsatisfactory [00:07:57] Speaker 03: product for competition and the whole point of the head start and the head start a phrase like head start is often more obscuring than clarifying that the question is there's a wrong the fundamental remedy principle everywhere in the law is Get rid of all the effects of the of the wrong. [00:08:16] Speaker 03: It's just everywhere in the law whether it's here. [00:08:18] Speaker 03: It's disgorging or [00:08:19] Speaker 03: or whether it's a rightful place for the plaintiff with respect to losses. [00:08:25] Speaker 03: So the question is were the sales that are included in this [00:08:32] Speaker 03: trade secret award. [00:08:34] Speaker 03: Let's now just talk about them as the iPod sales. [00:08:38] Speaker 03: Yes, the iPod sales. [00:08:42] Speaker 03: When would those have occurred had there not been a serious wrong of jumping the gun on the trade secret? [00:08:51] Speaker 01: So I understand and agree with the question. [00:08:55] Speaker 01: I think where I would disagree is with some of the facts. [00:09:00] Speaker 01: It's important, because there are a variety of products here with very similar numbers. [00:09:05] Speaker 01: I think the evidence about the very bad photodiode that Intersil supposedly put out, that was before. [00:09:12] Speaker 01: That was not the 29001. [00:09:15] Speaker 01: That was the earlier product that did not include the trade secret here. [00:09:19] Speaker 01: And in fact, the 29001 sold 7 and 1 half million units. [00:09:23] Speaker 01: So this notion that it was somehow not sufficiently competitive [00:09:28] Speaker 01: Customers were buying this product and buying it in the millions So I don't think that there's any basis to conclude that it wasn't sufficiently competitive in this market But even did you listen to the last federal circuit argument? [00:09:44] Speaker 04: Yes [00:09:46] Speaker 04: Council said that it was a 22-month head start period. [00:09:52] Speaker 04: Is that right? [00:09:53] Speaker 01: Yes, so I think that 22 months, Judge Chen, that was not based on the 29003. [00:09:58] Speaker 01: That 22 months was because [00:10:01] Speaker 01: In February 2004, that was when Intrasil first started to design the 29001. [00:10:07] Speaker 01: And then 22 months later, in December 2005, is when the 29001 was released. [00:10:13] Speaker 04: There was some internal documentation saying it would be a 12 to 24 month period to develop and market. [00:10:21] Speaker 04: This product is not right. [00:10:23] Speaker 01: It was a 12 to 24 month period to to market all of the changes, right? [00:10:27] Speaker 01: So the 29001 had many changes and the record shows that the bulk of those changes or at least the time for the bulk of those changes was related to the digital circuitry that was added. [00:10:38] Speaker 01: So the 29001 not only changed the photodiode structure. [00:10:41] Speaker 01: It also added analog to digital converters. [00:10:43] Speaker 01: It added a serial bus. [00:10:45] Speaker 01: And the admissions on Taos's side showed that that circuitry is far more complex. [00:10:51] Speaker 01: But none of that circuitry is required to practice the trade secret. [00:10:54] Speaker 01: And the reason you know that is because Taos itself had a version [00:10:59] Speaker 01: of the exact trade secret structure here, it's called the TSL 2440, that was analog. [00:11:03] Speaker 01: It did not include any of these digital components. [00:11:06] Speaker 01: And so I don't think you can say that the head start from the trade secret itself is that entire period when the bulk of the, and I can provide the court with the record sites, the bulk of the changes or the time for making those changes was on non-trade secret features. [00:11:22] Speaker 04: Can I take you to the February 2005 to January 2006 question? [00:11:30] Speaker 04: I didn't see any argument by your side saying yes, definitely, in a counterfactual scenario where if your client had played fair and square and not misappropriated any trade secrets, they certainly would have begun reverse engineering as soon as [00:11:53] Speaker 04: the other side's product was commercially released in February 2005. [00:11:58] Speaker 04: I didn't see that kind of argument. [00:11:59] Speaker 04: Instead, I saw an argument of when could have your clients developed and reverse engineered, which was February 2005. [00:12:11] Speaker 04: And that got me thinking of patent law obviousness questions, where we ask, at the time of the invention, [00:12:20] Speaker 04: what would have a skilled artisan have done, not what a skilled artisan could have done. [00:12:26] Speaker 04: And so I'm puzzled by why you have an argument about what you could have done when really for this counterfactual scenario, it seems to me we ought to be asking, what would you have done? [00:12:38] Speaker 04: And I didn't really see you telling that story. [00:12:40] Speaker 01: I see I'm into my rebuttal time. [00:12:44] Speaker 01: So Judge Chen, I think the reason it's the could-have inquiry, and I think Texas law is clear on this in the Lucas decision, that it's the could-have inquiry. [00:12:52] Speaker 01: is because trade secret protection extends only insofar as it provides some competitive advantage in the marketplace. [00:12:59] Speaker 01: And so when products are sold from which competitors can readily access that information, there no longer is any competitive advantage. [00:13:07] Speaker 01: And in the Lucas decision, that was the exact issue that was put to the Texas Supreme Court. [00:13:12] Speaker 01: The plaintiff there argued that because the defendant had obtained the information improperly from the plaintiff, it was irrelevant that they could have gone out and obtained it through public sources. [00:13:22] Speaker 01: and relied on the KNG oil, the same decision that the district court relied on here. [00:13:27] Speaker 01: And the Texas Supreme Court rejected that view for the reason I just said. [00:13:31] Speaker 01: Once that information is available through public sources, readily available to competitors, there's no competitive advantage. [00:13:37] Speaker 01: And so no trade secret protection continues. [00:13:40] Speaker 03: If 22 months was the right period, starting from February 28, we're beyond [00:13:50] Speaker 03: the December 2006 design win for the iPod, right? [00:13:57] Speaker 01: I think the iPod design win was in September 2006. [00:13:59] Speaker 01: September? [00:14:01] Speaker 03: I see, OK. [00:14:02] Speaker 01: But I think a couple of points on this 22 months. [00:14:06] Speaker 01: First of all, the 22 months, that started before any misappropriation. [00:14:10] Speaker 01: That started in February. [00:14:11] Speaker 01: The design process here started in February of 2004. [00:14:14] Speaker 01: There was a change to the photo diode in August of 2004. [00:14:19] Speaker 01: numerous witness admissions making clear that the change to just the photodiode itself would take about 30 months. [00:14:25] Speaker 01: So I don't think you can add the six months that were before, or if I did my math right, yes, the six months that were before and move it all ahead. [00:14:35] Speaker 01: I think the other really critical point to understand here is [00:14:37] Speaker 01: If you're going to include the design wins, then the end of the head start period is the point at which someone could be competing for design wins, not when they were actually selling the product. [00:14:49] Speaker 01: And that's why the seven months. [00:14:51] Speaker 03: So I'm thinking about the September 2006 design win on the iPod. [00:14:57] Speaker 03: Was that a two? [00:15:01] Speaker 03: company competition and Apple selected you and not them. [00:15:09] Speaker 03: Is that how that worked or is it like one of these government contracts where the government says two people are now available to be selected when we decide it's time to put in an order? [00:15:20] Speaker 03: Don't worry about the clock. [00:15:21] Speaker 01: Yeah, I'm not sure who else was competing at that time, Judge Toronto. [00:15:28] Speaker 01: I do know that the design wins here. [00:15:30] Speaker 01: It is, in some sense, like the government context in that a design win just simply means you're on the list of potential providers from which Apple was going to select products. [00:15:41] Speaker 01: But I think the problem with thinking about the design wins is if you define the head start period as when products started being sold, [00:15:51] Speaker 01: then you can't also look at design wins. [00:15:54] Speaker 01: That's mixing and matching because the design, for example, the 29003, the design win happened in September of 2006, but the 29003 wasn't launched until October. [00:16:05] Speaker 01: So they had a product that they were already sampling much earlier than that. [00:16:10] Speaker 01: And so if you're going to consider design wins, [00:16:12] Speaker 01: You also need to consider the end of the head start period as the point at which the Intersil could have had products to compete in a design win process. [00:16:21] Speaker 01: And so that's why the seven months that we've explained in our brief is the proper end, because that's from when the misappropriation occurred in August 2004. [00:16:32] Speaker 01: It was seven months until Intersil could [00:16:37] Speaker 01: actually had products in competitors hands and was competing for design wins. [00:16:40] Speaker 01: So I think that you can't mix and match sort of the end of the head start period as based on when sales first occurred, but somehow include the design wins. [00:16:50] Speaker 01: You have to pick one or the other. [00:16:52] Speaker 01: I do just, if I could briefly touch on the exemplary damages. [00:16:56] Speaker 03: I think even, can you start by saying why that wasn't effectively forfeited last time? [00:17:02] Speaker 03: Last time you brought out the disgorgement [00:17:08] Speaker 03: award, the exemplary damages award, put aside the contract. [00:17:11] Speaker 03: And most of the brief was about the disgorgement was improper for a variety of reasons, but one of which is there was the wrong decision maker. [00:17:19] Speaker 03: And then you have a single page or two paragraphs, going over two pages, that said the rule is if [00:17:27] Speaker 03: Actual damages are vacated, then so must be exemplary damages. [00:17:31] Speaker 03: So first you characterize the trade secret, disgorgement, as actual damages. [00:17:37] Speaker 03: But you simply say that, so that has to be sent back. [00:17:41] Speaker 03: When you could and could have said and didn't say what you now say, which is, if it's just disgorgement, the Texas statute precludes an exemplary damages award. [00:17:53] Speaker 03: Why is it not too late to say that now? [00:17:55] Speaker 01: So I think two reasons. [00:17:58] Speaker 01: One, any forfeiture was forfeited by the other side. [00:18:00] Speaker 01: We pressed this argument below to the district court on remand. [00:18:04] Speaker 01: The other side did not say it had not been preserved, and the district court passed on it. [00:18:07] Speaker 01: So it was pressed and passed on, and I think it's properly before this court now. [00:18:11] Speaker 01: But even aside from that, I think the premise that it could have been pressed at the first appeal I think is not quite right, because at the first trial, [00:18:22] Speaker 01: Taos did attempt to prove compensatory damages. [00:18:25] Speaker 01: They sought disgorgement, and they sought a reasonable royalty. [00:18:27] Speaker 03: But you were making the argument to this court that this was not a lost type of disgorgement. [00:18:34] Speaker 03: It was a pure disgorgement. [00:18:36] Speaker 03: And that was, in fact, a necessary premise of your argument that it had to be sent to a different decision maker, not the jury but the judge. [00:18:44] Speaker 03: So if you were right about that, then [00:18:47] Speaker 03: You had everything in front of you to say, and in that circumstance, there cannot be an exemplary damages award. [00:18:55] Speaker 01: So I understand your point, Judge Charano. [00:18:57] Speaker 01: I think it was a different issue because they had also proved some compensatory damages as well. [00:19:03] Speaker 01: So then I think that the question then would have been whether, well, when they proved some compensatory damages and then they also sought disgorgement, would Texas law allow exemplary damages, it was only [00:19:14] Speaker 01: At the second trial, the compensatory damage at the first trial being that they sought a reasonable royalty on trade secret. [00:19:24] Speaker 01: At the second trial, there was no attempt to prove any compensatory damages from trade secret. [00:19:29] Speaker 01: And so I think this was a new issue that arose on remand in any event, as I said before. [00:19:34] Speaker 01: I think the other side forfeited their forfeiture argument. [00:19:36] Speaker 01: The red brief was the first time that that was raised. [00:19:40] Speaker 03: I think you wanted to say something about the merits of exemplary damages. [00:19:44] Speaker 01: Yes. [00:19:45] Speaker 01: I would like to address the merits of exemplary damages, which I think the Texas statute, this is chapter 41 of the Texas statute, is expressed that there are no exemplary damages absent some compensatory damages. [00:19:59] Speaker 01: Both the Longview decision at one site and the Walmart decision at the other sites makes clear that, at least on this type of disgorgement, [00:20:08] Speaker 01: The type of disgorgement that this court recognized in the prior appeal where the disgorgement is not a proxy for some kind of actual losses to the plaintiff, those are not compensatory damages under Texas law. [00:20:18] Speaker 04: I would have thought you would have said exemplary damages would be capped at $200,000, which is what the alternative is under 41.008b2. [00:20:30] Speaker 01: Yes, so I think the Walmart decision speaks to that, Judge Chen, and makes clear that when there's been no proof of any compensatory damage at all, any injury that was caused by the harm that's being complained of, then there are no exemplary damages available. [00:20:48] Speaker 04: And I think that makes sense as a matter of the- Well, they found that the civil penalties there were, in fact, exemplary damages. [00:20:54] Speaker 04: And we can't get any exemplary damages on top of exemplary damages. [00:20:59] Speaker 01: Well, I think the upshot of the conclusion there was that the plaintiffs got nothing. [00:21:07] Speaker 01: They didn't also get the exemplary damages. [00:21:08] Speaker 01: They got nothing because they never proved any actual damages in the case. [00:21:12] Speaker 01: And I think that makes sense from the purpose of compensatory damages, or sorry, of exemplary damages, which is to deter intentionally harmful conduct. [00:21:23] Speaker 01: And so if you don't prove any actual harm from the conduct you're complaining of, there's nothing to deter. [00:21:28] Speaker 03: I'm confused about a small detail, but I want to make sure I get it right. [00:21:35] Speaker 03: So I'm looking at your brief from eight years ago, and it reports the verdict that you were coming up on appeal on as trade secret misappropriation $48 million in change for disgorgement of Intel's profits for misappropriation of trade secrets and $10 million in exemplary. [00:21:53] Speaker 03: It's nothing there about any compensatory piece. [00:21:57] Speaker 01: Well, yes, that's correct, Judge Charlron. [00:21:59] Speaker 01: And I'm sorry if I suggest otherwise. [00:22:01] Speaker 01: All I meant was that at that trial, they had attempted to prove. [00:22:05] Speaker 03: Oh, the trial, but that wasn't part of the award that you were appealing. [00:22:11] Speaker 01: That's right. [00:22:12] Speaker 01: And so I think my point was just it presented a different question of when somebody potentially proved compensatory damages but then elected something else, then would tap. [00:22:23] Speaker 03: Right. [00:22:23] Speaker 03: But when the jury said they hadn't, [00:22:26] Speaker 03: they hadn't proved compensatory on the trade secret, then we're perfectly in the situation that you find yourself in now, which is non-exemplary, pure disgorgement. [00:22:38] Speaker 03: Can there be exemplary? [00:22:42] Speaker 01: I'd have to look back, Judge Strada. [00:22:45] Speaker 03: Do I have a minute just to at least address the double recovery issue on on contracts or I think I'm I Would like to hear what you think should happen on prejudgment interest and let me tell you how it is see if I understand this right but that this is all not on the trade secret because that's I don't think that actually raises raises an issue but on the contract and [00:23:13] Speaker 03: damages. [00:23:14] Speaker 03: So we have 10 years of reasonable royalty from 2004 to 2014. [00:23:19] Speaker 03: Is that what it is? [00:23:21] Speaker 01: That's correct. [00:23:21] Speaker 03: Okay. [00:23:22] Speaker 03: And a judgment in 2022. [00:23:24] Speaker 03: And it's not disputed that there's prejudgment interest owed from 2014 to 2022 on all of it because 2014 is the end of the sales for which a reasonable royalty was paid. [00:23:41] Speaker 03: There is a dispute, however, about sales between November 2008 and 2014. [00:23:47] Speaker 03: And your view is that those sales should have interest only from the date of the sale up to 2014, plus everything eight years later to 2022. [00:24:04] Speaker 03: And the alternative is [00:24:08] Speaker 03: Interest for all those sales back to November 2008 is have I framed what the concrete dispute is on that? [00:24:17] Speaker 01: I think I think I might frame it slightly differently just Toronto in that the plaintiff has the burden if they want to seek prejudgment interest to propose a method for calculating prejudgment interest that's consistent with Texas law or I guess if we're talking about the contractor or consistent with [00:24:34] Speaker 01: California law. [00:24:35] Speaker 01: California law and the contract? [00:24:37] Speaker 01: The contract is governed by California law. [00:24:41] Speaker 01: So I think we did not have a burden to come forward with some alternative method. [00:24:47] Speaker 01: And I think the problem is that the only method the other side proposed is clearly contrary to the law, because it's incurring interest long before the sales for which they're requesting a recovery. [00:24:57] Speaker 03: Was that also the case or not the case? [00:25:04] Speaker 03: Our lump-sum royalty case Schwendemann, and it cites an earlier case, maybe Comcast or something like that. [00:25:12] Speaker 03: Were any of those sales post-complaint, or were they all pre-complaint? [00:25:18] Speaker 01: Yeah, I'm not sure. [00:25:19] Speaker 03: Because if some of those were post-complaint, then that's some precedent for the idea that just not to make this too darn complicated, a lump-sum award can be treated as a unit [00:25:33] Speaker 03: all of which, and therefore all governed by the complaint starting date. [00:25:39] Speaker 01: OK. [00:25:41] Speaker 01: Am I allowed to say at least one thing on the double recovery? [00:25:44] Speaker 01: I think this case has proceeded all along, and particularly through the liability phase, on the understanding that TALS's claim here is for trade secret misappropriation or a breach of contract. [00:25:56] Speaker 01: And that's because all of the facts here are about a single injury based on the same set of operative facts. [00:26:02] Speaker 01: which is that in June of 2004, the parties entered into a trust relationship. [00:26:08] Speaker 01: And in August of 2004, Ingersil breached that by using information it received. [00:26:12] Speaker 01: within that relationship. [00:26:15] Speaker 01: That's a single injury, and you're allowed a single recovery for that injury. [00:26:20] Speaker 01: But when you mix a disgorgement remedy with a reasonable royalty remedy, you're getting a recovery twice. [00:26:29] Speaker 01: Maybe my friend on the other side will disagree, but I don't think anybody would suggest [00:26:33] Speaker 01: that they could have recovered disgorgement of all profits sold during the head start period, but also a trade secret reasonable royalty for sales after that period. [00:26:42] Speaker 03: I thought the whole point, and I think what Judge Mazan said is we're talking about different units sold, which as you know in patent law is very common. [00:26:54] Speaker 03: Different sales, some of them can be lost profits, some of them can be reasonable royalty. [00:27:00] Speaker 03: There are no overlapping units. [00:27:02] Speaker 01: So I think the point I was making, Judge Sharano, maybe was slightly differently. [00:27:07] Speaker 01: That if they tried to obtain both of these remedies under their trade secret theory, that would clearly be improper. [00:27:13] Speaker 01: And the reason it would be improper is because the trade secret disgorgement is already trying to value their entire injury. [00:27:19] Speaker 01: And then the trade secret reasonable royalty would be adding to that. [00:27:23] Speaker 01: Calling it a contract reasonable royalty rather than a trade secret reasonable royalty [00:27:27] Speaker 01: doesn't change that conclusion, because it's the same claim for the same legal injury. [00:27:33] Speaker 01: And so the problem is that the disgorgement is already trying to give them the entire value that they have any entitlement to. [00:27:42] Speaker 01: And then when you add in the contract award, you're recovering more than once. [00:27:47] Speaker 01: And the problem with the product theory is that the other side is relying on patent cases. [00:27:51] Speaker 01: These are not patent claims. [00:27:54] Speaker 01: They do not have any exclusionary right. [00:27:56] Speaker 01: Each sale is not [00:27:57] Speaker 01: a new infringement of any right, and there's no statutory entitlement to reasonable royalties. [00:28:02] Speaker 01: I think for all of those reasons, there was no basis to give an award on both contract and trade secrets. [00:28:11] Speaker 01: Thank you for the question. [00:28:15] Speaker 03: And you'll have your rebuttal time. [00:28:19] Speaker 03: Can you add 13 minutes? [00:28:23] Speaker 03: Add 13. [00:28:25] Speaker 03: Thanks. [00:28:29] Speaker 05: Morning, Your Honors. [00:28:30] Speaker 05: Chase Coburn on behalf of TALIS, I'm joined by my co-counsel Michael McCabe and Mike Wilson. [00:28:36] Speaker 05: May it please the Court. [00:28:38] Speaker 05: Seven years ago, this Court found overwhelming evidence, in its words, of Intersil's misappropriation and no evidence of Intersil's independent design. [00:28:50] Speaker 05: At Intersil's request, the court remanded for the district court to decide in equity and based on the facts of this case, the extent of any head start or competitive advantage that Intersil gained from the misappropriation. [00:29:06] Speaker 05: At Appendix 116, paragraph 50, the district court found, quote, based on the evidence, [00:29:12] Speaker 05: had Intersil not misappropriated Talsys trade secret, Intersil would not have developed an acceptable or competitive chip to show, sample, and market to Apple before March 2008, and therefore would not have achieved... The March 2008 date. [00:29:36] Speaker 04: reflects not only this hypothetical world of a head start period, but it also reflects what actually happened in reality, right? [00:29:43] Speaker 04: In the sense that what was chosen by the district court was a start date of when they actually did the reverse engineering. [00:29:53] Speaker 04: And then the duration of time was the actual duration of time it took for Intersil to develop the 03 product. [00:30:03] Speaker 04: Is that right? [00:30:04] Speaker 04: That's correct, Your Honor. [00:30:05] Speaker 04: So I guess what I'm trying to figure out is that seems kind of strange to basically peg this counterfactual world to what actually happened. [00:30:18] Speaker 04: And I'm not sure that's really what the exercise was supposed to be in terms of trying to develop what would have happened if Intersil had played fair and square and done this cleanly. [00:30:32] Speaker 05: Absolutely your honor. [00:30:33] Speaker 05: So I just would note that that was one of the reasons that the district court noted for the for the head start period The time the actual time it took in her still to get to from misappropriation to a competitive product I guess what I'm trying to let me put a finer point on it. [00:30:48] Speaker 04: Why wouldn't the start date be? [00:30:50] Speaker 04: February 2005 because [00:30:53] Speaker 04: You know, all circumstances show that Intersil was a very motivated player here to get into this market as quickly as possible. [00:31:03] Speaker 04: And so therefore, of course, when this was released to everyone and when anyone and everyone could reverse engineer it, they too would have [00:31:13] Speaker 04: tried to reverse engineer it at that time, and then from that point forward, however long it took, maybe 26 months to eventually develop a product that could properly compete with your product. [00:31:25] Speaker 05: So several reasons for that, Your Honor. [00:31:28] Speaker 05: First of all, it was undisputed that there was no one else. [00:31:32] Speaker 05: There were no other competitors. [00:31:34] Speaker 05: There was no one else that ever ascertained or had access to the trade secret. [00:31:37] Speaker 04: There was no evidence of that. [00:31:38] Speaker 04: In the hypothetical world, it's still anybody, anybody that could have done it. [00:31:42] Speaker 04: Well, Your Honor, we would dispute that there was evidence from our experts that without the prior knowledge... I mean, do we really think that they would have, Intersil would have sat on its hands for a year before they would have actually reverse engineered your product? [00:32:01] Speaker 04: uh... you're on a report perfectly i don't think they're still have the experience to derive the trade secret from reversing sure you can get a view of that that that's a that's a different question like how long would it have actually taken these people even if they were working to actually successfully reverse engineering the question proper question i think it's when would they have done and i still don't understand [00:32:27] Speaker 04: the theory that they would have waited as long as they actually did when they didn't even need to because they already possessed the trade secret. [00:32:35] Speaker 05: So, Your Honor, I just would note the district court did make a factual finding that is unchanged. [00:32:40] Speaker 04: I want to know why there's some rationale for that. [00:32:45] Speaker 04: that that that what the water so couldn't do it or that anybody could that that interest so would have sat on its hands for a year after your product was released before it would have commenced reverse engineering i don't know that it's the interest of what it sounds hands it's that inner so would not be able to [00:33:05] Speaker 05: identify the trade secret and recreate that structure in its own products during that time period. [00:33:11] Speaker 05: That's a factual finding. [00:33:12] Speaker 04: That's the duration. [00:33:13] Speaker 04: That's the 26-month duration. [00:33:16] Speaker 04: My question is a different question. [00:33:20] Speaker 04: It seems like we're not getting anywhere. [00:33:22] Speaker 04: Yeah, I'm not sure. [00:33:23] Speaker 05: I'm not sure I'm understanding your question, Your Honor. [00:33:24] Speaker 05: I apologize. [00:33:25] Speaker 05: So I would note, just to get back to, I think, your original question, Your Honor, was why do we care about their actual timeline, their actual development timeline? [00:33:36] Speaker 05: I do think it's important to note that that was simply one of, I think, six reasons the district court noted for the 26-month period. [00:33:44] Speaker 05: The district court also considered Towson's development timeline. [00:33:47] Speaker 05: a four-year development timeline and said, look, this is half of that, roughly half of that. [00:33:53] Speaker 05: The court also considered Intersil's internal documents. [00:33:56] Speaker 05: You mentioned one of them that mentioned the 12 to 24-month time-to-market advantage. [00:34:02] Speaker 05: The district court said that there was substantial evidence that the trade secret never became known to anyone else. [00:34:06] Speaker 05: You know, Talis was right back in this market and got appellated. [00:34:09] Speaker 04: On exemplary damages, you heard after the issue got remanded, [00:34:17] Speaker 04: At any time in front of the judge below did you argue that? [00:34:26] Speaker 04: Exemplary damn big the other side in her soul cannot challenge the temporary damages anymore. [00:34:32] Speaker 05: So they waived it absolutely your honor absolutely And I don't have that appendix page in front of me. [00:34:36] Speaker 05: I can get it to your honor pretty critical absolutely we think the first of those came up is actually too light of a word and [00:34:44] Speaker 05: We absolutely contested that. [00:34:46] Speaker 05: 17 million is on the line. [00:34:47] Speaker 05: Yes, Your Honor. [00:34:48] Speaker 05: We contested that they could challenge high ability for punitive damages and make the Seventh Amendment argument and make the Chapter 41 argument. [00:34:59] Speaker 05: We absolutely contested that. [00:35:00] Speaker 05: We can provide that after argument. [00:35:04] Speaker 05: But I think it's clear. [00:35:07] Speaker 05: Go ahead, Your Honor. [00:35:07] Speaker 05: Sorry. [00:35:08] Speaker 04: OK. [00:35:09] Speaker 04: Did you cite it, perhaps, in your red brief? [00:35:12] Speaker 05: I don't know that we cited in our red brief, Your Honor. [00:35:14] Speaker 05: It wasn't until the reply brief that I think it was said that we did not raise this below. [00:35:20] Speaker 05: But it may well be there, Your Honor. [00:35:25] Speaker 05: I'm happy to address exemplary damages. [00:35:28] Speaker 05: I just want to note on the proper accessibility question I think Judge Toronto raised. [00:35:32] Speaker 05: The answer to your question about whether or not April 28, 2007 would make a difference. [00:35:38] Speaker 05: And I think the answer is no remand would be necessary if Your Honor were to find that the Head Start period ended in April 28, 2007, because that would cover the iPod design win, as I think you noted in September 2006. [00:35:55] Speaker 05: However, I do think it's important to note that there really is no basis to challenge the district court's factual finding that the product release did not reveal the trade secret. [00:36:07] Speaker 05: This is a factual finding that the district court made on Appendix 99 [00:36:12] Speaker 05: paragraph 29, the court finds that the trade secret was not properly accessible. [00:36:18] Speaker 03: So I mean, you're pushing on a door that's not terribly open. [00:36:23] Speaker 03: All that language says is it's not a kind of case where [00:36:28] Speaker 03: Basically, there was a spec sheet that was put out with the product that you actually needed to take the thing to do a little bit of work, at least a little bit. [00:36:40] Speaker 03: And I think the language that you're quoting doesn't go beyond the not apparent on its face immediately or by description. [00:36:48] Speaker 03: And then the question is, well, if you need an electron microscope, there are several of them local, and that's what everybody does. [00:36:57] Speaker 03: And I don't see the district court having made a finding that that was an unlikely or difficult or terribly time-consuming enterprise in this particular market context. [00:37:13] Speaker 05: I understand, Your Honor. [00:37:15] Speaker 05: What I would point to is the district court's description of Texas case law on those dealing with post-misappropriation access to the trade secret. [00:37:23] Speaker 05: There's a fundamental distinction there. [00:37:25] Speaker 05: A lot of the cases cited in the opening brief are dealing with pre-misappropriation [00:37:31] Speaker 05: access for something that's available on the market, and you can't be accused of misappropriation if it's already available. [00:37:37] Speaker 05: But once we're after misappropriation, Texas case law is a little different from everywhere else, but it does provide a lot of protection for trade secrets, even after they become available in a patent application. [00:37:50] Speaker 05: That's the case in Hyde and K&G Oil and some of the other cases we cited. [00:37:54] Speaker 05: Even if it's available through reverse engineering, [00:37:57] Speaker 05: The misappropriator does not necessarily get the benefit of that publication. [00:38:02] Speaker 05: That's what Texas case law says. [00:38:04] Speaker 05: So it's not in every case, but the court has discretion to not give the misappropriator the benefit of that public disclosure. [00:38:12] Speaker 03: This is- So as I read a bunch of these cases, maybe all of them, I don't know, I didn't see anything that departed from this [00:38:23] Speaker 03: fundamental, essentially universal, put people back in the position they would have been in in the absence of a wrong principle in Texas law. [00:38:32] Speaker 03: You're not suggesting that Texas [00:38:36] Speaker 03: does something that departs from that principle? [00:38:39] Speaker 05: No, Your Honor. [00:38:40] Speaker 05: No, Your Honor. [00:38:40] Speaker 05: And I think that goes to what Texas law is trying to accomplish with this doctrine. [00:38:46] Speaker 05: It's saying, let's look at the misappropriator. [00:38:49] Speaker 05: We don't care so much about everybody else. [00:38:51] Speaker 05: Let's look at what the misappropriator could have done, absent misappropriation. [00:38:56] Speaker 05: Let's follow that. [00:38:57] Speaker 05: And in this case, we know that the record shows very clearly that they were far behind the competition. [00:39:03] Speaker 05: TALS was way ahead. [00:39:05] Speaker 05: There was a 100-year collective gap of experience there. [00:39:09] Speaker 05: And when they took this information and adopted it... I'm sorry, I didn't get that. [00:39:13] Speaker 03: 100 years? [00:39:13] Speaker 05: Over 100 years. [00:39:14] Speaker 05: Collective experience between the two companies. [00:39:16] Speaker 03: Even Texas Instruments wasn't around 100 years ago, let alone... Between the engineers. [00:39:23] Speaker 03: Oh, adding experience. [00:39:25] Speaker 05: Yes, collective experience, Your Honor, yes. [00:39:27] Speaker 05: So there was a huge experience gap. [00:39:29] Speaker 05: They were way ahead. [00:39:30] Speaker 05: Their only product didn't even have the critical function that they needed to compete. [00:39:35] Speaker 05: All of that was gained through that due diligence in 2004. [00:39:38] Speaker 05: So when we look at intersils, the value to intersils, this is why Texas case law looks at the misappropriator after there's been adjudicated misappropriation and decides, what did they gain? [00:39:51] Speaker 05: What was the benefit to them? [00:39:54] Speaker 05: And that's consistent with what I think you're referring to, which is what the equity court's been doing for hundreds of years, looking at what is the actual ill-gotten gain from the misappropriation. [00:40:04] Speaker 05: And that's exactly what the district court did. [00:40:06] Speaker 05: And I think that's why the district court could look at Intersil, even when there was evidence that, okay, people are putting these under scanning electron microscopes and looking at them and getting a picture. [00:40:16] Speaker 05: But that doesn't really answer the question of what Intersil could do. [00:40:19] Speaker 05: And TALSA's expert testified [00:40:22] Speaker 05: that without the prior knowledge that they gained during due diligence, this is appendix 11.533, without this prior knowledge, reverse engineering wouldn't have done it for them. [00:40:32] Speaker 05: They would not have been able to obtain the trade secret and actually develop a competing product. [00:40:37] Speaker 05: There was evidence to that effect on the record. [00:40:40] Speaker 03: There's no evidence that the first of those couldn't be done by reverse engineering, right? [00:40:48] Speaker 03: The discovery of the structure. [00:40:53] Speaker 03: That's one thing. [00:40:54] Speaker 03: And then the make a competing product is a second thing. [00:40:58] Speaker 03: I don't remember seeing evidence that the discovery of the structure was particularly difficult or that reverse engineering couldn't result in that discovery. [00:41:11] Speaker 05: It was true that you could obtain a picture of the structure, yes, but the evidence was that you wouldn't necessarily know why the structure was important, what to do with it, why this change was made between the 3.1 to a 1.1, unless you had the confidential information from due diligence. [00:41:30] Speaker 05: And I just would note that there is a distinction there. [00:41:32] Speaker 05: The confidential information that they gained was specific testing endpoints and results of using this technology [00:41:41] Speaker 05: So you really already knew what to look for. [00:41:43] Speaker 05: You knew what it did before you go and pull the product apart. [00:41:46] Speaker 05: So they gained a lot of insight from that and they knew what to look for and Kirk Lanning tells the CEO, [00:41:53] Speaker 05: said that reverse engineering would, in this context, would require knowing what to look for, and this is the witness that they cite repeatedly. [00:42:02] Speaker 05: Intersil itself said that this product was not that easily copied. [00:42:06] Speaker 05: When they were in due diligence with Taos, they were looking at Taos' products, they were talking to Taos' engineers, and they said, this is not that easily copied, as we've been finding out. [00:42:16] Speaker 05: So they were way behind in the market, they got all this information, and then, [00:42:20] Speaker 05: Even with all that information, it took them until January 2006 to actually reverse engineer it. [00:42:28] Speaker 00: Mr. Cohen, let me ask you a question. [00:42:29] Speaker 00: There's been discussion, assuming for the moment, that we go with the 2005 accessibility date, but also go with the 26-month period that the district court employed. [00:42:42] Speaker 00: Doesn't that create a problem for your cross appeal? [00:42:47] Speaker 00: Because as I read the record, this is for the claim for the $3 million on the cross appeal. [00:42:55] Speaker 00: Doesn't that create a problem? [00:42:56] Speaker 00: Because we're talking here, I guess, about the iPhone 3G. [00:43:01] Speaker 00: And it appears that all the activity related to that appeared or took place, if you will, prior to the end of 07. [00:43:13] Speaker 03: And in particular, after April of this year. [00:43:16] Speaker 05: That's correct, Your Honor. [00:43:17] Speaker 05: If the court were to adopt that framework, then it would exclude the cross field. [00:43:21] Speaker 05: OK. [00:43:21] Speaker 05: That's correct. [00:43:23] Speaker 05: That's correct. [00:43:24] Speaker 03: And just to be clear on this point that I think I started with, if we're dealing with an April 07 end [00:43:34] Speaker 03: head start period, but also include the iPod because of the so-called design win back in September of 2006. [00:43:49] Speaker 03: Does anything change about the misappropriation award? [00:43:56] Speaker 00: uh... under the current judgment no your honor nothing would change because it would include the and i'm excluding the exemplary right i'm just just correctly non-exemplary recovery correct correct your honor that's right that's right one other question in the issue of the contract damages doesn't stand in there there was no word one of the things will call the derivative products separate that's correct what exactly are the derivative products [00:44:24] Speaker 05: So the derivative products are products that incorporate the, their inner silver lied on this design, TALIS's design to make the derivative products. [00:44:37] Speaker 05: The only real difference between the derivative products and the primary products is what the material is used to cover the dia. [00:44:44] Speaker 05: So the primary products use metal and the derivative products use a color filter. [00:44:50] Speaker 05: That's really the only difference. [00:44:52] Speaker 04: Did the district court find that the derivative products incorporate the one-to-one interleaving pattern trade secret? [00:45:00] Speaker 04: I didn't see the district court. [00:45:02] Speaker 05: Suggest that so the district court didn't address that issue in particular because that was part of the jury question whether the the derivative products first of all used the trade secret or the confidential information including the trade secret and then also whether Damages were properly awarded on the derivative process the jury decided that issue and necessarily rejected the premise that the derivative products somehow didn't use the the confidential information and I would also note that but but just so I [00:45:33] Speaker 03: I think, as I understood Judge Chen's question, it might be one thing whether the derivative products used confidential information. [00:45:43] Speaker 03: It might be a narrow question whether the derivative products use the one-to-one ratio that is the specific trade secret for purposes of the trade secret misappropriation, which I understand was not in front of the jury. [00:45:59] Speaker 03: What's the factual answer to whether the derivative products have the one-to-one ratio? [00:46:06] Speaker 05: So I would just take the court to page 19 of our red brief. [00:46:11] Speaker 05: We have some pictures that we provide. [00:46:15] Speaker 04: I can't tell what those pictures are. [00:46:17] Speaker 05: It's kind of difficult to see, Your Honor. [00:46:18] Speaker 05: The coloring may not work very well, but what can be seen from these pictures is a couple things. [00:46:29] Speaker 05: Primary product, which is the top left, shows interleaved diodes right next to each other. [00:46:36] Speaker 05: Individual diodes, diode by diode, it's covered and uncovered. [00:46:38] Speaker 04: We're not going to be able to figure it out here. [00:46:40] Speaker 05: I just wanted to know one thing, Your Honor, that might help with the picture. [00:46:44] Speaker 05: The only difference that you might be able to discern from these pictures is that the groups of diodes are covered for the derivatives. [00:46:52] Speaker 05: But they're still covered in a one-to-one ratio. [00:46:54] Speaker 05: Covered and uncovered. [00:46:55] Speaker 05: It's a one-to-one ratio. [00:46:56] Speaker 04: Why is it called a derivative product? [00:46:58] Speaker 04: Why isn't it just called Trade Secret Incorporated Products? [00:47:04] Speaker 05: I don't know the answer to that, Your Honor. [00:47:06] Speaker 05: I don't know why that name was used. [00:47:09] Speaker 00: I'm sorry. [00:47:09] Speaker 00: Excuse me. [00:47:09] Speaker 00: Were you finished? [00:47:11] Speaker 00: I'm finished. [00:47:12] Speaker 00: OK. [00:47:12] Speaker 00: Long mission. [00:47:13] Speaker 00: Were you saying, Mr. Pullman, that the derivative products incorporate both the one-to-one trade secret that's the subject of the misappropriation issue, and also [00:47:25] Speaker 00: other confidential material that is covered, other confidential matters, if you will, that are covered by the agreement, the California agreement? [00:47:36] Speaker 05: Yes, Your Honor, yes. [00:47:37] Speaker 00: So you're saying both elements are included in the derivative products? [00:47:43] Speaker 05: Yes, Your Honor, yes. [00:47:44] Speaker 05: And I don't believe that's [00:47:46] Speaker 05: in dispute any longer, we've pointed out in the red brief that there's all this evidence of use of the confidential information. [00:47:53] Speaker 05: And I believe the reply brief's response is the use is not the issue. [00:47:57] Speaker 05: It's inclusion of these products in the royalty base. [00:48:01] Speaker 05: So I think the issue has changed to some extent. [00:48:04] Speaker 05: You mean the royalty base for the contract damages? [00:48:06] Speaker 05: For the contract damages. [00:48:07] Speaker 05: That's correct. [00:48:07] Speaker 05: That's correct. [00:48:08] Speaker 05: And just a further point on the evidence there, we have a [00:48:12] Speaker 05: picture of a document on Redbrief, page 20, where Intersil actually was viewing these products as having the same structure. [00:48:22] Speaker 05: The same structure. [00:48:22] Speaker 05: That was Intersil's own description. [00:48:26] Speaker 03: Can I ask you on exemplary damages, putting aside any question about forfeiture or too late math, what is your argument that the Texas statute, the Chapter 41 statute, permits exemplary damages on [00:48:52] Speaker 03: when the non-exemplary damages are pure non-proxy disgorgement? [00:49:00] Speaker 05: So our first position there, Your Honor, is that Chapter 41 is not a prerequisite for exemplary damages. [00:49:07] Speaker 05: It's the damages cap statute in Texas, the punitive damages cap. [00:49:11] Speaker 05: So if Chapter 41 doesn't apply, then we were entitled to the $64 million that the jury awarded. [00:49:18] Speaker 05: So we think that that's incorrect. [00:49:21] Speaker 05: We think Chapter 41 does apply. [00:49:23] Speaker 03: OK, so assume it applies. [00:49:24] Speaker 03: Why does it apply? [00:49:25] Speaker 05: We think it applies because essentially it covers any damages that are not exemplary damages. [00:49:32] Speaker 05: That's what it covers. [00:49:33] Speaker 05: And that's what the Forte decision says. [00:49:35] Speaker 05: I believe this was discussed in their argument. [00:49:38] Speaker 05: But Intersil's not arguing that disgorgement is exemplary damages. [00:49:42] Speaker 05: They're just saying it's not compensatory. [00:49:44] Speaker 05: The section of Chapter 41 I'm referring to is Chapter 41.0018, and it defines compensatory as essentially anything that's not exemplary damages. [00:49:57] Speaker 04: Is that what the chapter defines? [00:50:01] Speaker 04: I mean, right here, 41.008, your exemptory damages are not going to exceed two times the amount of economic damages plus any non-economic damages. [00:50:14] Speaker 04: But then the chapter itself defines economic damages, right? [00:50:21] Speaker 04: means compensatory damage is intended to compensate a claimant for actual economic or pecuniary loss. [00:50:28] Speaker 04: And I think we already wrapped up the last time in our prior opinion that this disgorgement award does not reflect at all the claimant's actual economic or pecuniary loss. [00:50:42] Speaker 04: So I don't see, I mean, [00:50:48] Speaker 04: may not exceed the greater of two times the amount of economic damages, there are no economic damages here. [00:50:55] Speaker 05: Not under the Texas Supreme Court's interpretation of Chapter 41, Your Honor. [00:50:59] Speaker 04: Are you talking about Walmart versus Forte? [00:51:01] Speaker 05: The Walmart decision, Your Honor. [00:51:03] Speaker 05: The Walmart decision says that the Longview is the case that says disgorgement's not compensatory. [00:51:08] Speaker 05: It actually says it's not damages. [00:51:10] Speaker 03: It says it is compensatory, but it says it's not damages. [00:51:14] Speaker 05: I thought it also said not compensatory. [00:51:16] Speaker 03: No, it says it's just like attorney's fees and costs. [00:51:19] Speaker 03: And I think some third thing, it is compensatory, but it's not damages. [00:51:22] Speaker 04: I don't remember anywhere in Walmart versus Forte where it said something like a disgorgement award is the same thing as economic damages. [00:51:34] Speaker 05: Forte simply rejects the traditional view of disgorgement as non-compensatory relief or [00:51:45] Speaker 05: Non-damages, really. [00:51:46] Speaker 04: In the sense that in 008A, in an action in which a claimant seeks recovery of damages, and it had to figure out whether that term damages encompasses something like the civil penalties that were being sought under the Texas Optometry Act. [00:52:05] Speaker 04: And civil penalties, it concluded, traditionally is not considered quote unquote damages. [00:52:11] Speaker 04: But for purposes of Chapter 41, it concluded that yes, it is. [00:52:15] Speaker 04: because it wanted to fulfill what it saw as the objective of Chapter 41, which was, it appears pretty strongly in the Texas Supreme Court's view, was to channel all exemplary damage recoveries through Chapter 41, which is why it concluded that Chapter 41 applies to such a thing as civil penalties, which is not damages, but it said so anyway. [00:52:43] Speaker 04: and then worked its way through the statute to conclude that in that particular case, there wasn't going to be any exemplary damages. [00:52:50] Speaker 04: And so now I'm trying to figure out why wouldn't, number one, an award for disgorgement be channeled through chapter 41 given that understanding of the term damages by the Texas Supreme Court? [00:53:08] Speaker 04: And then finally, why can we ever regard [00:53:15] Speaker 04: this equitable war as economic damage. [00:53:23] Speaker 05: So on the first question, Your Honor, the reason that the civil penalties in Forte were not recoverable with exemplary damages is because the civil penalties were exemplary damages. [00:53:36] Speaker 05: That's what the Texas Supreme Court said. [00:53:38] Speaker 04: That was an answer to question two, but you have to answer for their answer to question one. [00:53:45] Speaker 05: And I'm sorry, Your Honor. [00:53:47] Speaker 04: There were two certified questions in that case, from the Fifth Circuit to the Texas Supreme Court. [00:53:53] Speaker 04: The first question was, does Chapter 41 even apply? [00:53:59] Speaker 04: Or is it possible that it doesn't control the question of exemplary damages? [00:54:06] Speaker 04: And in that case, the Supreme Court said no. [00:54:09] Speaker 04: Yes, it does, even though [00:54:12] Speaker 04: Chapter 41 says its application is for an action for recovery of damages. [00:54:18] Speaker 04: It concluded that an action for civil penalties is encompassed by this term, an action for damages. [00:54:27] Speaker 04: And so if that's true, then why wouldn't Chapter 41 also encompass an action for [00:54:39] Speaker 04: other kinds of monetary relief that are not pure traditional damages, like the one we've got here. [00:54:46] Speaker 05: We would agree that it does, Your Honor. [00:54:48] Speaker 05: It does encompass. [00:54:49] Speaker 05: That's why the statutory capitalized. [00:54:50] Speaker 04: Then the next question is, why do you get two times the amount of your award here when your award cannot be said to be economic damages, because your award does not at all reflect any pecuniary loss by your client? [00:55:08] Speaker 05: For several reasons, Your Honor. [00:55:09] Speaker 05: First, we don't think the Texas Supreme Court is reading that to say it has to be purely compensatory actual damages. [00:55:17] Speaker 05: I think it's reading that in the context of when it's citing long view and distinguishing long view and saying that's not a proper interpretation or description of damages for purposes of Chapter 41. [00:55:28] Speaker 05: It's looking at monetary release. [00:55:30] Speaker 04: Is it your view that Forte's, they've made a ruling about what does it mean to count as economic damages? [00:55:37] Speaker 04: There's two different terms here that I'm afraid you're mixing up. [00:55:41] Speaker 04: One is when Chapter 41 refers to damages. [00:55:44] Speaker 04: Then there's the more specific question under 41.008b1a, where it talks about economic damages. [00:55:51] Speaker 04: And that's a different animal than just damage. [00:55:53] Speaker 04: Agreed, Your Honor. [00:55:54] Speaker 05: And I think what they ultimately say on that second question is, is it exemplary damages? [00:56:00] Speaker 05: Or is it something else? [00:56:02] Speaker 05: Essentially, any damages that's not exemplary damages would be covered by Chapter 41. [00:56:08] Speaker 05: But if it's exemplary damages, then you can't also recover more exemplary damages. [00:56:13] Speaker 05: But Intersil is not arguing that disgorgement is exemplary damages. [00:56:17] Speaker 05: So we don't have that question before the court. [00:56:20] Speaker 05: The question is simply whether disgorgement falls in one of the other boxes, other than exemplary damages. [00:56:25] Speaker 05: If it doesn't, then it doesn't apply at all. [00:56:28] Speaker 05: We get all the damages, the punitive damages. [00:56:30] Speaker 05: We suggest that it does apply. [00:56:32] Speaker 05: It's consistent with 150 years of Texas common law. [00:56:36] Speaker 05: There's been no Texas decision to suggest that Chapter 41 abrogated the common law of Texas, that you can recover disgorgement with exemplary damages. [00:56:47] Speaker 04: Can we get to prejudgment interest? [00:56:48] Speaker 05: Absolutely. [00:56:49] Speaker 05: Absolutely. [00:56:51] Speaker 04: Is it your view that you were entitled [00:56:55] Speaker 04: to the $8.5 million trade secret award at the time of filing the complaint? [00:57:06] Speaker 05: Connor, are you talking about the contract pre-judgment interest? [00:57:09] Speaker 04: Well, I guess we can first start with the contract pre-judgment interest. [00:57:15] Speaker 04: There were no sales yet. [00:57:19] Speaker 04: right, at the time of the complaint. [00:57:22] Speaker 05: That's correct, Your Honor. [00:57:22] Speaker 04: That's correct. [00:57:23] Speaker 04: And so isn't the whole theory behind prejudgment interest compensatory to try to make the plaintiff whole? [00:57:30] Speaker 05: Not just compensatory, Your Honor, at least for purposes of the Texas law. [00:57:35] Speaker 05: I know we're talking about contract. [00:57:36] Speaker 05: But the Texas statute says that it also encourages settlement and deters to lay by the defendant in particular. [00:57:45] Speaker 05: We cite this in the red brief. [00:57:48] Speaker 05: But as for the California statute, we're talking about a reasonable royalty here. [00:57:51] Speaker 05: This is lost royalties that would occur before the six. [00:57:54] Speaker 04: It's an ongoing royalty, right? [00:57:56] Speaker 04: It wasn't some kind of lump sum royalty. [00:58:00] Speaker 05: Well, these were lost royalties that would have been agreed upon before these sales occurred. [00:58:06] Speaker 05: So in terms of looking at what the actual loss is, we're looking before the sales. [00:58:11] Speaker 05: We're looking at what the parties would have agreed to. [00:58:12] Speaker 05: I mean, just like in a patent case, we're looking at an hypothetical idea. [00:58:15] Speaker 03: There's no loss until there's sales. [00:58:17] Speaker 03: What the agreement is is if there are going to be sales in the next 10 years, then this is what you must pay. [00:58:25] Speaker 03: But if there are no sales, it's going to be zero. [00:58:29] Speaker 03: That's correct. [00:58:30] Speaker 03: So prejudgment interest is just delay in getting the money from when you would have gotten it. [00:58:37] Speaker 03: So how does that go back to the date of the complaint for sales that didn't occur until afterwards? [00:58:44] Speaker 05: I think for the same reasons it does in a patent case. [00:58:47] Speaker 05: We were looking at the time of the hypothetical negotiation. [00:58:50] Speaker 05: We're looking at when the parties would have agreed. [00:58:52] Speaker 05: And we're also looking at discretionary factors under California law that they're not contesting. [00:58:58] Speaker 05: The district court had discretion to set the date of prejudgment interest. [00:59:02] Speaker 03: Would it be difficult to do the calculation? [00:59:07] Speaker 03: First of all, you may remember my little description of how there's no dispute about 2014 to 2022. [00:59:13] Speaker 03: So all of that is not [00:59:15] Speaker 03: Um, concretely in dispute. [00:59:18] Speaker 03: So there's like six years worth of sales from 2008 date of complaint until 2014. [00:59:24] Speaker 03: Um, would it be difficult to do the calculation? [00:59:28] Speaker 03: Do you know the dates of all the sales? [00:59:29] Speaker 05: I don't honor. [00:59:30] Speaker 03: I don't know whether you know them standing right here. [00:59:34] Speaker 03: I mean, [00:59:35] Speaker 05: Well, frankly, I don't know that they're in the record. [00:59:38] Speaker 05: I mean, we have aggregate numbers of sales for each product. [00:59:41] Speaker 05: I don't know that it would be possible to go back and, you know, run the numbers on every single sale and how long it was until, you know, from the date of sale. [00:59:49] Speaker 05: So I don't know that that's in the record, but that's one of the reasons that... Is it your burden to get prejudgment interest? [00:59:57] Speaker 05: It's our burden to satisfy the discretionary factors that the court under California law has to consider. [01:00:02] Speaker 05: The court did consider those factors as an entire analysis of these factors. [01:00:07] Speaker 05: They don't challenge that on appeal. [01:00:09] Speaker 05: They're just challenging the district court's ultimate conclusion to set the date at the date of suit. [01:00:16] Speaker 05: And this is not something that is outside of the ordinary for courts to decide based on the California statute. [01:00:25] Speaker 03: And the defendant made that objection to the district court? [01:00:29] Speaker 03: Is that right? [01:00:29] Speaker 05: That's correct. [01:00:30] Speaker 05: That's correct. [01:00:31] Speaker 05: That's correct. [01:00:33] Speaker 05: Briefly, if I could just address the contract really quickly. [01:00:37] Speaker 03: Very quickly. [01:00:38] Speaker 05: Yes. [01:00:39] Speaker 05: So the contract overlap issue, I just want to note that, [01:00:45] Speaker 05: This court held in the mandate and applied the error decision based on separate operative facts, separate operative facts being separate sales of separate accused products. [01:00:58] Speaker 05: The district court faithfully applied that on remand. [01:01:00] Speaker 05: and held that 18 distinct accused products were separate and distinct from the single accused product using the trade secret award. [01:01:09] Speaker 05: So we don't believe there's any basis to claim now that there's duplicative damages, especially when Intersil has relied on the Arrow decision. [01:01:15] Speaker 05: We've all relied on the Arrow decision. [01:01:17] Speaker 05: We've considered it analogous to Texas law. [01:01:21] Speaker 05: The district court considered it that way. [01:01:22] Speaker 05: I don't believe that's disputed. [01:01:24] Speaker 05: If that is the standard, there is no overlap here whatsoever. [01:01:30] Speaker 05: And and and I would also note that these be acts the actual I don't think you need to you're not saying anything That's okay perfectly self-evident from your brief. [01:01:39] Speaker 03: So I there's no reason to okay. [01:01:42] Speaker 05: Just repeat that. [01:01:44] Speaker 05: Okay, okay If the court doesn't have any further questions, I would just ask Dallas respectfully request that the court confirm all the awards Modify the judgment to include the Apple design wins and remand for no further issues. [01:01:57] Speaker 05: Thank you. [01:01:58] Speaker 03: Thank you [01:02:08] Speaker 01: Just a couple of points, and I'll try not to take up all of this time. [01:02:13] Speaker 01: On the difference between the 29001 and the 003, which I take it is the basis for this notion that 001 was not realistically competing, the change there was the change to the shape of the photodiode. [01:02:28] Speaker 01: Originally, there was kind of a square block shape, and the change was to make the photo dial narrow and closer together. [01:02:36] Speaker 01: But that's not the trade secret that this court recognized in the prior appeal, and for good reason, because that's shown on the face of Kaus' patent. [01:02:44] Speaker 01: I think I made sure I get the patent number, but the 918981. [01:02:49] Speaker 01: The patent that was in this case before shows exactly these narrow, long-stripped photo dials, and also describes exactly the basis for [01:02:57] Speaker 01: the spacing and things like that. [01:02:59] Speaker 01: So that change there was not a change based on the protected trade secret here. [01:03:06] Speaker 01: So it's improper to give value from things that were already publicly disclosed. [01:03:12] Speaker 01: And I think the other point to make is, in fact, looking at the pictures in the red brief on page 19 of these derivative products [01:03:22] Speaker 01: Intersil continues to use that same photodiode structure, the large blocks that were on the 29001. [01:03:31] Speaker 01: After this time, it continued to sell products that have that large structure. [01:03:37] Speaker 01: And so I don't think there's any basis in this record for concluding that the 003 somehow was a better competitive product than the 001, simply because [01:03:48] Speaker 01: Intersale succeeded in obtaining a design win from Apple on that product. [01:03:54] Speaker 01: One other point. [01:03:55] Speaker 03: Would you agree that on these two separate points, when did the secret enter the public domain? [01:04:04] Speaker 03: would your client have done in a competitive way once that secret was available? [01:04:15] Speaker 03: The first, your argument is essentially, this court asked the wrong question, and the law means it's February 28, 2005. [01:04:25] Speaker 03: But the second is a [01:04:27] Speaker 03: consider all of the facts, and hence, fact-finding by the district court, which you have to conclude, you have to say, at this point, would be clear error, right? [01:04:40] Speaker 03: That's the right standard for that component? [01:04:43] Speaker 01: That's the right standard for the factual components of the district court's finding. [01:04:46] Speaker 01: But I think the problem was that the district court committed legal errors, Judge Toronto, because they considered things that are not properly part of the inquiry. [01:04:54] Speaker 01: It considered the time to develop the trade secret itself from scratch without proper access. [01:04:59] Speaker 01: That's why it was considering the four years it took Taos to develop the trade secret, but the proper accessibility means that Taos or Interseal already possessed the trade secret without having to develop it. [01:05:10] Speaker 01: It also included time to develop all this digital circuitry, and the record is full of [01:05:15] Speaker 01: of admissions from Tauss's witnesses that the digital circuitry, which is not protected and is not part of the trade secret, is the far more complex part of changes to the product. [01:05:26] Speaker 01: And then I think third, it included not just the first generation of products, but the second generation. [01:05:31] Speaker 01: I don't think Texas law permits that inquiry. [01:05:34] Speaker 01: The case the district court relied on for that was the research equipment case. [01:05:37] Speaker 01: But in the research equipment case, it was undisputed that it took eight months [01:05:42] Speaker 01: before the misappropriators competition came home. [01:05:47] Speaker 01: Yet the Texas court there rejected the trade secret holders request for an eight-month injunction, or for a longer injunction, and said that a 90-month injunction was proper because of the simplicity of the products, and that's the only competitive advantage was the 90 days. [01:06:04] Speaker 01: Here, the photo diode itself, Tauss's own CEO at the time admitted, the photo diode itself is a very simple part. [01:06:11] Speaker 01: And there's multiple, we cite in our brief, multiple admissions that, for that part only, it took 30 days. [01:06:20] Speaker 01: And in fact, just to put this in context, this isn't just me telling you what's in the record. [01:06:25] Speaker 01: If you look at when the reverse engineering happened in January 2006, Judge Chen, you talked about, well, what actually happened. [01:06:33] Speaker 01: In January 2006, Intersil reverse engineered and took photos and saw they're using the narrower [01:06:42] Speaker 01: One month later, in February, it said, let's switch our product, the 003, to that design. [01:06:49] Speaker 01: By April and May of that same year, so three to four months later, it had products in Apple's hand to be sampling. [01:06:59] Speaker 01: with that exact structure. [01:07:01] Speaker 01: So I think that shows you in terms of what actually happened. [01:07:06] Speaker 01: Within three to four months of reverse engineering, it had changed its photodiode to include that structure and had products in customers' hands. [01:07:13] Speaker 01: I think on those facts, I think there are legal errors, but even as a matter of factual error, I think it is clear error to adopt a 26-month head start period. [01:07:23] Speaker 01: Just briefly on the derivative products. [01:07:25] Speaker 01: They were called derivative products because they do not. [01:07:27] Speaker 01: The parties agreed they do not include the trade secret. [01:07:30] Speaker 01: And that's for at least two reasons. [01:07:32] Speaker 01: I think the simplest and easiest reason that they do not include the trade secret is because they do not use the shielded and unshielded wells. [01:07:39] Speaker 01: Instead, the derivative products use color filters. [01:07:41] Speaker 01: which this court's prior decision recognized, that was the old technology that TALS supposedly overcame by, instead of using color filters, using shielded and unshielded wells. [01:07:51] Speaker 01: And so these are derivative products because they're using color filters, and then also they do not, for the most part, do not use one-to-one in the way that this one-to-one interleaving. [01:08:00] Speaker 01: What TALS is calling one-to-one, [01:08:02] Speaker 01: is actually a 16 to 16 or different ratios where there are big blocks of photodiodes, say eight of one kind, and then big blocks of photodiodes. [01:08:11] Speaker 01: And Taos is trying to say that's one-to-one. [01:08:14] Speaker 01: But for either of those reasons, they do. [01:08:16] Speaker 00: So you're saying the derivative products are totally divorced from the trade secret product. [01:08:21] Speaker 01: Well, I don't want to overstate it, Judge Schall. [01:08:23] Speaker 01: They do not include the trade secret structure, which Taos's own CEO admitted was 99.5% of the value proposition here and would have been the entire basis of a reasonable royalty negotiation. [01:08:36] Speaker 01: And so they do not include that structure. [01:08:39] Speaker 01: And in fact, for the reasons I had just explained, they largely include the design that Taos said it was overcoming because they used the color filters that were part of the prior art before. [01:08:51] Speaker 01: I guess I am using almost all of my time. [01:08:57] Speaker 01: Yes? [01:08:57] Speaker 04: The exemplary damages, again, there was a question in response to Judge Toronto's question about whether the arguably waived a challenge to the exact exemplary damage award. [01:09:11] Speaker 04: You said, well, the other side waived any possible waiver by not raising that. [01:09:19] Speaker 04: waiver problem below post-remand. [01:09:22] Speaker 04: And I'm just wondering, you said that, you know, like 35 minutes ago, did you say it anywhere in your briefing? [01:09:29] Speaker 01: No, so we didn't say that in the briefing because I think the red... So I guess what I'm wondering is are we looking at a triple waiver? [01:09:37] Speaker 01: A waiver of the waiver of the waiver. [01:09:39] Speaker 01: I think the answer is no because the red brief, I think we would have waived it if it was presented and we didn't raise it in our blue brief, Judge Chen, but I don't know that there's a waiver in a reply brief. [01:09:51] Speaker 04: They brought up in their red brief that you waived it and then now it's time to look at the yellow brief in response to that allegation of waiver. [01:09:59] Speaker 04: And I don't see this yellow brief saying anything about, aha, there's a waiver of the waiver against our potential waiver. [01:10:07] Speaker 04: Fair enough. [01:10:07] Speaker 04: It's the first time it was here today. [01:10:10] Speaker 01: It is not in our yellow brief, Judge Chen. [01:10:14] Speaker 01: I guess I'm not usually familiar with waivers in a reply brief, but it is not there. [01:10:20] Speaker 01: I will just say that we agree with your reading of Walmart and the way it applies to the facts in this case. [01:10:27] Speaker 03: Thank you. [01:10:28] Speaker 03: Thanks to all counsel. [01:10:29] Speaker 03: The case is submitted.