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Raytheon Co. v. Indigo Systems Corp.

United States Court of Appeals, Federal Circuit

July 12, 2018

RAYTHEON COMPANY, Plaintiff-Appellant
v.
INDIGO SYSTEMS CORPORATION, FLIR SYSTEMS INCORPORATED, Defendants-Cross-Appellants

          Appeals from the United States District Court for the Eastern District of Texas in No. 4:07-cv-00109-RAS, Judge Richard A. Schell.

          Michael Ross Cunningham, Cunningham Swaim, LLP, Dallas, TX, argued for plaintiff-appellant. Also represented by Steven Dominic Sanfelippo, Thomas C. Wright.

          Joseph R. Palmore, Morrison & Foerster LLP, Washington, DC, argued for defendants-cross-appellants. Also represented by Seth W. Lloyd; Michael Joseph Collins, Robert Millimet, Brewer, Attorneys & Counselors, Dallas, TX.

          Before Newman, Dyk, and Chen, Circuit Judges.

          CHEN, CIRCUIT JUDGE.

         These consolidated appeals arise from a district court action filed by Raytheon Company (Raytheon) against Indigo Systems Corporation and FLIR Systems (FLIR) (collectively, Indigo) for trade secret misappropriation and patent infringement. The patent infringement claims were settled by the parties and dismissed. After a three-week trial, a jury found that Indigo did not misappropriate Raytheon's trade secrets relating to the production of infrared cameras. The district court then entered final judgment in favor of Indigo. Raytheon appeals from the district court's denial of its motion for judgment as a matter of law and motion for new trial regarding two of the alleged trade secrets. Indigo cross-appeals from the district court's decision denying its motion for attorney fees.

         For the reasons that follow, we affirm the judgment of no liability in favor of Indigo. We also affirm the district court's denial of attorney fees.

         Background

         Raytheon is an industry leader in infrared technology and produces infrared imaging equipment. Indigo is a wholly-owned subsidiary of FLIR that also specializes in infrared imaging equipment. The technology at issue is embodied in infrared cameras, which enable people to see in the dark and through obstructions such as smoke. Inside the infrared camera are electronics to operate the camera and process digital data collected by an infrared detector, and a package to house the infrared detector.

         The infrared detector is the "eye" of an infrared camera. There are two types of infrared detectors: cooled and uncooled. A cooled detector is housed within a "dewar," i.e., a detector package, which is integrated into a detector dewar cooler assembly. An uncooled detector is housed within a vacuum detector package assembly. To operate properly, cooled detectors must be cooled to a subcryogenic temperature. In contrast, uncooled detectors operate at an atmospheric ambient temperature. Cooled detectors are both more expensive and more sensitive than uncooled detectors. Whether cooled or uncooled, infrared detectors must be maintained in a vacuum environment to work properly.

         Indigo was founded in 1996 by four individuals, including three former Raytheon employees. In 2000, Indigo obtained an investment by Northrup Grumman to enter the infrared imaging market. By late 2000, Indigo was manufacturing and selling its own infrared cameras.

         In 2007, Raytheon filed suit against Indigo in the Eastern District of Texas, alleging patent infringement as well as trade secret misappropriation under both California and Texas law. J.A. 122-33. For the trade secrets claims, Raytheon alleged that Indigo misappropriated Raytheon's trade secrets through hiring former Raytheon employees. J.A. 125.

         The district court granted summary judgment to Indigo in 2009, finding that Raytheon's trade secrets claims were time-barred. J.A. 294-311. Indigo then moved for attorney fees under the Texas Theft Liability Act (TTLA). Tex. Civ. Prac. & Rem. Code § 134.001-005; J.A. 312-94. The district court denied the motion on the ground that Indigo had not pleaded for attorney fees in its answer. J.A. 414-16. The parties then settled Raytheon's patent claims, and the district court entered final judgment, dismissing the patent claims with prejudice. J.A. 417, 11566.

         The parties cross-appealed-Raytheon from the grant of summary judgment and Indigo from the denial of fees. This court reversed the district court's grant of summary judgment, reasoning that there were factual questions regarding when Raytheon should have become aware of its misappropriation cause of action. Raytheon Co. v. Indigo Sys. Corp., 688 F.3d 1311, 1318-19 (Fed. Cir. 2012). We also vacated the district court's order denying Indigo's motion for attorney fees. Id. at 1313 n.1. We noted, however, that the district court's reliance on the Supreme Court's decisions in Ashcroft v. Iqbal, 556 U.S. 662 (2009), and Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), to support its conclusion, was misplaced. Raytheon, 688 F.3d at 1313 n.1. After we remanded the case to the district court for further proceedings, id. at 1319, Raytheon amended its complaint, asserting its trade secret misappropriation claim only under California law and not Texas law, J.A. 432-49.

         Trial began in 2014. Raytheon contended that Indigo had misappropriated 31 purported trade secrets belonging to Raytheon. J.A. 4-5. The jury ruled in Indigo's favor on all 31 alleged trade secrets.

         Following the verdict, Raytheon renewed its motion for judgment as a matter of law, contending that it had conclusively established misappropriation of two specific trade secrets and that judgment should be entered in its favor, notwithstanding the jury's verdict. J.A. 881-909. The two trade secrets related to Raytheon's method and use of a specific sequential vacuum baking procedure (Trade Secret 14), and its process for in situ solder sealing package assemblies (Trade Secret 30). Although the jury found that both of these processes were trade secrets, it concluded that Indigo had not misappropriated either of them. J.A. 4-8, 10. Indigo filed its own renewed motion for judgment as a matter of law, contending that the evidence failed to demonstrate that alleged Trade Secrets 14 and 30 are truly trade secrets. J.A. 737-53. The district court denied both parties' motions. J.A. 20-23.

         Indigo also filed an amended motion for attorney fees under the TTLA. J.A. 680-81. Indigo argued that it qualified as a prevailing party under the TTLA because Raytheon had withdrawn its TTLA claim to avoid an unfavorable determination on the merits, i.e., an adverse choice-of-law ruling that California law, rather than Texas law, governed Raytheon's misappropriation claims. J.A. 693-97. In denying Indigo's motion, the district court observed that Raytheon's continued pursuit of its misappropriation claims under California law established that Raytheon's withdrawal of its TTLA claim was not motivated by a desire to avoid an unfavorable ruling on the merits. J.A. 28.

         Standards of Review

         This court reviews denials of motions for judgment as a matter of law and new trial under the law of the regional circuit where an appeal would otherwise lie. See The-rasense, Inc. v. Becton, Dickinson & Co., 593 F.3d 1325, 1330 (Fed. Cir. 2010). Denials of motions for attorney fees under state law are reviewed under regional circuit standards applying state law. See Int'l Rectifier Corp. v. Samsung Elecs. Co., 424 F.3d 1235, 1238 (Fed. Cir. 2005); Flex-Foot, Inc. v. CRP, Inc., 238 F.3d 1362, 1365-66 (Fed. Cir. 2001). The regional circuit here is the Fifth Circuit.

         The Fifth Circuit reviews a denial of a motion for judgment as a matter of law de novo. See Janvey v. Romero, 817 F.3d 184, 187 (5th Cir. 2016). Judgment as a matter of law is appropriate only where "the facts and inferences point so strongly and overwhelmingly in favor of one party that the court concludes that reasonable jurors could not arrive at a contrary verdict." Orion IP, LLC v. Hyundai Motor Am., 605 F.3d 967, 973 (Fed. Cir. 2010) (applying Fifth Circuit law). The reviewing court must "draw all reasonable inferences and resolve all credibility determinations in the light most favorable" to the jury's verdict. Power-One, Inc. v. Artesyn Techs., Inc., 599 F.3d 1343, 1350-51 (Fed. Cir. 2010) (applying Fifth Circuit law). We affirm a district court's denial of judg- ment as a matter of law when there was substantial evidence to support the jury's verdict. Id. at 1350.

         The Fifth Circuit reviews a decision to grant or deny a motion for a new trial for abuse of discretion. Foradori v. Harris, 523 F.3d 477, 503-04 (5th Cir. 2008). The appellate court's "review of the denial of a new trial motion is more limited than when one is granted." Whitehead v. Food Max of Miss., Inc., 163 F.3d 265, 269 (5th Cir. 1998). Where a motion for a new trial is based on insufficiency of the evidence, a district court abuses its discretion in denying that motion only if the appellant makes a "clear showing" of "an absolute absence of evidence to support the jury's verdict." Id. Thus, in that context, the standard of review is actually "even more deferential than [the court of appeals'] review of the denial of a motion for judgment as a matter of law." Hidden Oaks Ltd. v. City of Austin, 138 F.3d 1036, 1049 (5th Cir. 1998).

         The standard of review in the Fifth Circuit for a district court's denial of attorney fees is abuse of discretion. See Batton v. IRS, 718 F.3d 522, 525 (5th Cir. 2013). The appellate court reviews de novo the legal question of a party's eligibility to recover attorney fees under a statute. Id.; Texas v. Interstate Commerce Comm'n, 935 F.2d 728, 730 (5th Cir. 1991).

         Discussion

         The district court entered final judgment in favor of Indigo on March 31, 2016. Raytheon appealed on April 29, 2016, and Indigo timely cross-appealed on May 11, 2016. We have jurisdiction under 28 U.S.C. § 1295(a)(1) (2012). Although the patent claims that gave rise to jurisdiction under 28 U.S.C. § 1338 were settled and dismissed with prejudice, "the path of an appeal is determined by the basis of jurisdiction in the district court, and is not controlled by the substance of the issues that are appealed." Rothe Dev. Corp. v. Dep't of Def., 545 F.3d 1023, 1034 (Fed. Cir. 2008) (internal quotation marks and alterations omitted). Where a patent claim is joined with a state-law claim in the complaint, we have jurisdiction over the entire appeal of the final judgment even where, as here, the patent claims have been dismissed with prejudice. See Chamberlain Grp., Inc. v. Skylink Techs., Inc., 381 F.3d 1178, 1190 (Fed. Cir. 2004) (holding that this court "retain[s] appellate jurisdiction over all pendent claims in the complaint" where the patent claims were dismissed with prejudice below).

         The principal issues on appeal are: (1) whether the jury's verdict that Indigo did not misappropriate Raytheon's Trade Secrets 14 and 30 was supported by substantial evidence; (2) whether the district court abused its discretion in denying Raytheon's motion for a new trial; and (3) whether the district ...


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