Raytheon Company v. Indigo Systems Corporation
895 F.3d 1333 (2018)
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Rule of Law:
A jury's verdict finding no trade secret misappropriation will be upheld when supported by substantial evidence of independent development. A defendant is not a 'prevailing party' entitled to statutory attorney fees when a plaintiff voluntarily withdraws a claim based on one state's law to pursue the same underlying claim under another state's law, as this is not a dismissal to avoid an unfavorable ruling on the merits.
Facts:
- Raytheon Company and Indigo Systems Corporation both develop and manufacture infrared imaging equipment.
- Indigo was founded in 1996 by four individuals, three of whom were former Raytheon employees, including Andrew Sharpe and Carl Magoun.
- Raytheon possessed proprietary manufacturing processes it considered trade secrets, including a 'sequential vacuum baking' procedure (Trade Secret 14) and an 'in situ solder sealing' process (Trade Secret 30).
- After joining Indigo, former Raytheon employee Andrew Sharpe was tasked with setting up a vacuum packaging facility, similar to work he had performed at Raytheon.
- Indigo developed its own vacuum baking and solder sealing processes for its infrared cameras.
- Indigo's in situ solder sealing process was primarily developed by an employee, Paul Schweikert, who had never worked at Raytheon.
Procedural Posture:
- Raytheon sued Indigo in the U.S. District Court for the Eastern District of Texas for patent infringement and trade secret misappropriation under both California and Texas law.
- The district court granted summary judgment for Indigo, finding the trade secret claims time-barred, and denied Indigo's motion for attorney fees.
- The parties settled the patent infringement claims.
- On a prior appeal, the U.S. Court of Appeals for the Federal Circuit reversed the summary judgment and vacated the attorney fees denial, remanding the case for trial.
- On remand, Raytheon amended its complaint, dropping the Texas Theft Liability Act (TTLA) claim and proceeding only under California's trade secret law.
- A jury found in favor of Indigo on all trade secret misappropriation claims.
- Raytheon moved for judgment as a matter of law (JMOL) and for a new trial, which the district court denied.
- Indigo moved for attorney fees under the TTLA, arguing it was the prevailing party on that withdrawn claim; the district court denied the motion.
- Raytheon appealed the denial of its JMOL and new trial motions, and Indigo cross-appealed the denial of its motion for attorney fees.
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Issue:
Does substantial evidence support a jury's verdict of no trade secret misappropriation where the defendant presented credible evidence of independent development, and is a defendant a 'prevailing party' entitled to attorney fees under the Texas Theft Liability Act (TTLA) when the plaintiff voluntarily dismisses the TTLA claim to proceed under another state's law?
Opinions:
Majority - Chen, Circuit Judge.
Yes, the jury's verdict of no misappropriation is supported by substantial evidence, and no, Indigo is not a 'prevailing party' entitled to attorney fees. A jury's factual findings will not be overturned on appeal if they are supported by substantial evidence. Here, Indigo presented credible evidence that it independently developed the technologies at issue. For Trade Secret 14 (vacuum baking), testimony from former Raytheon employee Andrew Sharpe indicated he developed Indigo's process through experimentation and public knowledge, not by using Raytheon's specific recipes. The court also found Indigo's process was substantially different from Raytheon's. For Trade Secret 30 (solder sealing), Indigo provided evidence that its process was created by an employee who never worked for Raytheon, thus negating the claim that it was derived from a former Raytheon employee. Regarding the cross-appeal for attorney fees, Indigo did not 'prevail' under the Texas Theft Liability Act (TTLA). Raytheon's withdrawal of its TTLA claim was a strategic choice to pursue its misappropriation claim under California law, not an attempt to avoid an unfavorable ruling on the merits of the theft claim itself, which is required to trigger the fee-shifting provision.
Analysis:
This decision reinforces the significant deference appellate courts give to jury verdicts in fact-intensive trade secret cases, affirming that strong evidence of independent development is a complete defense to a misappropriation claim. The case also underscores the critical importance for plaintiffs to specifically and consistently define their alleged trade secrets at trial, as attempts to broaden the definition on appeal will be rejected. Furthermore, the court's interpretation of the 'prevailing party' status for attorney fees provides clarity that a tactical choice of law by a plaintiff does not automatically make the defendant a 'winner' entitled to fees under a withdrawn statutory claim.
