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Nos. 2013-1210, -1234
IN THE
United States Court of Appeals for the Federal Circuit
________________________________
BROCADE COMMUNICATIONS, INC., and FOUNDRY NETWORKS, LLC,
Plaintiffs-Appellees,
v.
A10 NETWORKS, INC., Defendant-Appellant,
and
LEE CHEN, RAJKUMAR JALAN, RON SZETO, and STEVE HWANG,
Defendants. ________________________________
Appeal from the United States District Court for the Northern District of California Case No. 2:06-cv-13936, Magistrate Judge Paul Grewal
________________________________
BRIEF FOR APPELLEES ________________________________
Annette L. Hurst Denise M. Mingrone Bas de Blank ORRICK, HERRINGTON & SUTCLIFFE, LLP 1000 Marsh Rd. Menlo Park, CA 94025 Fabio E. Marino MCDERMOTT, WILL & EMERY 275 Middlefield Rd. Menlo Park, CA 94025 March 26, 2013
Neal Kumar Katyal Jessica L. Ellsworth Judith Coleman David M. Ginn HOGAN LOVELLS US LLP 555 Thirteenth Street, N.W. Washington, D.C. 20004 Tel.: (202) 637-5600 Fax: (202) 637-5910 Counsel for Appellees
Case: 13-1210 Document: 46 Page: 1 Filed: 03/26/2013
i
CERTIFICATE OF INTEREST Counsel for appellees Brocade Communications Systems, Inc. and Foundry
Networks, LLC certifies the following:
1. The full name of every party or amicus represented by me is:
Brocade Communications Systems, Inc. and Foundry Networks, LLC.
2. The name of the real party in interest represented by me is: Brocade
Communications Systems, Inc. and Foundry Networks, LLC.
3. All parent corporations and any publicly held companies that own 10
percent or more of the stock of the party or amicus curiae represented by me are:
None.
4. The names of all law firms and the partners or associates that
appeared for the party or amicus now represented by me in the trial court or agency
or are expected to appear in this court are: Hogan Lovells US LLP (Neal Katyal,
Jessica Ellsworth, Judith Coleman, David Ginn); Orrick Herrington &
Sutcliffe LLP (Matthew Poppe, Annette Hurst, Bas de Blank, Christina Marie
Von Der Ahe, Denise Mingrone, Elizabeth McBride, Gary Weiss, Siddhartha
Venkatesan); Skadden Arps Slate Meagher & Flom, LLP (Allen Ruby);
McDermott Will & Emery (Fabio Marino, Nitin Gambhir, Teri Nguyen).
Dated: March 26, 2013 /s/ Neal Kumar Katyal
Case: 13-1210 Document: 46 Page: 2 Filed: 03/26/2013
ii
TABLE OF CONTENTS
Page
CERTIFICATE OF INTEREST ................................................................................. i
TABLE OF AUTHORITIES ..................................................................................... v
STATEMENT OF RELATED CASES .................................................................. xii
COUNTERSTATEMENT OF THE ISSUES ............................................................ 3
COUNTERSTATEMENT OF THE FACTS ............................................................ 3
A. Foundry Develops Innovative Technologies And Captures A High End Market Niche .................................................................... 3
B. A10 Steals Foundry’s Intellectual Property And Develops Competing Products .............................................................................. 5
C. Brocade Files Suit, The Jury Finds A10 Liable, And The District Court Enjoins A10 From Continuing To Infringe And Misappropriate Brocade’s Intellectual Property ........................... 8
SUMMARY OF ARGUMENT ............................................................................... 13
ARGUMENT ........................................................................................................... 15
I. STANDARD OF REVIEW ........................................................................... 15
II. THE DISTRICT COURT DID NOT ABUSE ITS DISCRETION BY ENTERING A PERMANENT PATENT INJUNCTION ...................... 16
A. The District Court Did Not Abuse Its Discretion In Holding That Brocade Would Be Irreparably Harmed Absent An Injunction ............................................................................................. 17
1. Brocade established that it would be irreparably harmed and that there was a causal nexus between the harm it faced and A10’s infringement ...................................... 18
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TABLE OF CONTENTS – Continued
Page
iii
2. In the alternative, it is not necessary to establish a causal nexus in the context of a narrowly tailored permanent injunction that does not cover an entire product ...................................................................................... 26
B. Brocade’s Remedies At Law Are Inadequate ..................................... 29
C. The Balance Of Hardships Favors Brocade ........................................ 32
D. The Injunction Serves The Public Interest .......................................... 34
III. THE DISTRICT COURT DID NOT ABUSE ITS DISCRETION BY ENTERING A PERMANENT TRADE SECRET INJUNCTION ................................................................................................ 38
A. Substantial Evidence Supports The District Court’s Finding That Brocade Is Entitled To An Injunction To Prevent A10’s Continuing Misappropriation Of Brocade’s Trade Secrets................. 38
1. The District Court did not clearly err in finding that Brocade’s trade secrets remain confidential ............................. 40
2. The District Court correctly rejected A10’s head-start argument in finding that the evidence in this case supported entry of a trade secret injunction .............................. 44
a. The commercial-advantage period does not “limit” the scope of an injunction on a trade secret that remains confidential ...................................... 46
b. Even if it were relevant, the commercial advantage associated with Brocade’s trade secrets has not expired .................................................... 48
B. The Equitable Factors Also Favor Injunctive Relief .......................... 51
1. A10’s ongoing use of Brocade’s trade secrets irreparably injures Brocade ....................................................... 51
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TABLE OF CONTENTS – Continued
Page
iv
2. The other equitable considerations also favor relief ................. 57
C. There Is No Basis To Award A10 A Reasonable Royalty .................. 58
CONCLUSION ........................................................................................................ 59
CERTIFICATE OF COMPLIANCE
CERTIFICATE OF SERVICE
Case: 13-1210 Document: 46 Page: 5 Filed: 03/26/2013
v
TABLE OF AUTHORITIES
Page(s)
CASES:
ActiveVideo Networks, Inc. v. Verizon Commc’ns, Inc., 694 F.3d 1312 (Fed. Cir. 2012) .......................................................................... 25
Acumed LLC v. Stryker Corp., 551 F.3d 1323 (Fed. Cir. 2008) .................................................................... 20, 30
Agency Solutions.Com, LLC v. TriZetto Group, Inc., 819 F. Supp. 2d 1001 (E.D. Cal. 2011) .............................................................. 54
Ajaxo, Inc. v. e*Trade Group, Inc., 2003 WL 25778061 (Cal. Super. Ct. Aug. 15, 2003) ......................................... 47
Ajaxo, Inc. v. e*Trade Group, Inc., 135 Cal. App. 4th 21 (2005) ............................................................................... 55
Am. Paper & Packaging Prods. v. Kirgan, 183 Cal. App. 3d 1318 (1986) ...................................................................... 46, 47
Apple, Inc. v. Motorola, Inc., 869 F. Supp. 2d 901 (N.D. Ill. 2012) ................................................ 10, 31, 32, 34
Apple, Inc. v. Samsung Elecs. Co., 678 F.3d 1314 (Fed. Cir. 2012) .............................................................. 19, 27, 28
Apple, Inc. v. Samsung Elecs. Co., 695 F.3d 1370 (Fed. Cir. 2012) ...................................................................passim
Apple, Inc. v. Samsung Elecs. Co., 2012 WL 6569786 (N.D. Cal. Dec. 17, 2012) .............................................. 24, 25
Apple, Inc. v. Samsung Elecs. Co., 877 F. Supp. 2d 838 (N.D. Cal. 2012) ................................................................ 26
Bard Peripheral Vascular v. W.L. Gore & Assocs., 670 F.3d 1171 (Fed. Cir. 2012), modified in part on other grounds, 682 F.3d 1003 (Fed. Cir. 2012) .......................................................................... 31
Case: 13-1210 Document: 46 Page: 6 Filed: 03/26/2013
TABLE OF AUTHORITIES – Continued
Page(s)
vi
BBA Nonwovens Simpsonville, Inc. v. Superior Nonwovens, LLC, 303 F.3d 1332 (Fed. Cir. 2002) .......................................................................... 39
Beckman Instruments, Inc. v. Cincom Sys., Inc., 165 F.3d 914 (9th Cir. 1998) .............................................................................. 51
Broadcom Corp. v. Qualcomm Inc., 543 F.3d 683 (Fed. Cir. 2008) ................................................................ 25, 28, 29
Cacique, Inc. v. Robert Reiser & Co., Inc., 169 F.3d 619 (9th Cir. 1999) .............................................................................. 58
Cadence Design Sys., Inc. v. Avant! Corp., 57 P.3d 647 (Cal. 2002) .......................................................................... 38, 55, 56
Celsis In Vitro, Inc. v. CellzDirect, Inc., 664 F.3d 922 (Fed. Cir. 2012) ...................................................................... 20, 54
Central Valley Gen. Hosp. v. Smith, 162 Cal. App. 4th 501 (2008) ............................................................................. 52
ClearOne Comm’ns, Inc. v. Bowers, 643 F.3d 735 (10th Cir. 2011) ............................................................................ 45
Coca-Cola Co. v. Reed Indus., 864 F.2d 850 (Fed. Cir. 1988) ............................................................................ 54
Cont’l Paper Bag Co. v. E. Paper Bag Co., 210 U.S. 405 (1908) ............................................................................................ 29
Convolve, Inc. v. Compaq Computer Corp., 2011 WL 7144803 (S.D.N.Y. Oct. 6, 2011) ....................................................... 47
Dun v. Lumbermen’s Credit Ass’n, 209 U.S. 20 (1908) .............................................................................................. 31
DVD Copy Control Ass’n, Inc. v. Bunner, 75 P.3d 1 (Cal. 2003) .................................................................................... 52, 57
Case: 13-1210 Document: 46 Page: 7 Filed: 03/26/2013
TABLE OF AUTHORITIES – Continued
Page(s)
vii
eBay, Inc. v. MercExchange, LLC, 547 U.S. 388 (2006) .....................................................................................passim
Edwards Lifesciences AG v. Corevalve, Inc., 699 F.3d 1305 (Fed. Cir. 2012) .................................................................... 23, 30
E.I. du Pont de Nemours & Co. v. MacDermid Printing Solutions, LLC, 525 F.3d 1353 (Fed. Cir. 2008) .......................................................................... 15
Fantasy Sports Properties v. Sportsline.com, 287 F.3d 1108 (Fed. Cir. 2002) .......................................................................... 37
Fid. Brokerage Servs. LLC v. McNamara, 2011 WL 2117546 (S.D. Cal. May 27, 2011) .................................................... 52
Fresenius Med. Care Holdings, Inc. v. Baxter Int’l, Inc., 2008 WL 928496 (N.D. Cal. Apr. 4, 2008) ........................................................ 23
Fresenius USA, Inc. v. Baxter Int’l, Inc., 582 F.3d 1288 (Fed. Cir. 2009) .......................................................................... 23
Helifix Ltd. v. Blok-Lok, Ltd., 208 F.3d 1339 (Fed. Cir. 2000) .......................................................................... 16
i4i Ltd. P’ship v. Microsoft Corp., 598 F.3d 831 (Fed. Cir. 2010), aff’d, 131 S. Ct. 2238 (2011) ................ 15, 34, 35
In re Oracle Corp. Sec. Litig., 627 F.3d 376 (9th Cir. 2010) .............................................................................. 42
Johnson & Johnson Vision Care, Inc., v. CIBA Vision Corp., 712 F. Supp. 2d 1285 (M.D. Fla. 2010) .............................................................. 31
Key Pharms. v. Hercon Labs. Corp., 161 F.3d 709 (Fed. Cir. 1998) ............................................................................ 42
Lermer Germany GmbH v. Lermer Corp., 94 F.3d 1575 (Fed. Cir. 1996) ............................................................................ 27
Case: 13-1210 Document: 46 Page: 8 Filed: 03/26/2013
TABLE OF AUTHORITIES – Continued
Page(s)
viii
Lillge v. Verity, 2007 WL 2900568 (N.D. Cal. Oct. 2, 2007) ...................................................... 54
Litton Systems, Inc. v. Sundstrand Corp., 750 F.2d 952 (Fed. Cir. 1984) ............................................................................ 57
Maynard v. City of San Jose, 37 F.3d 1396 (9th Cir. 1994) .............................................................................. 42
Microsoft Corp. v. i4i Ltd. P’ship, 131 S. Ct. 2238 (2011) ........................................................................................ 35
Microsoft Corp. v. Motorola, Inc., 696 F.3d 872 (9th Cir. 2012) .............................................................................. 31
Mikohn Gaming Corp. v. Acres Gaming, Inc., 165 F.3d 891 (Fed. Cir. 1998) ............................................................................ 15
Morlife, Inc. v. Perry, 56 Cal. App. 4th 1514 (1997) ........................................................... 39, 45, 50, 51
Novozymes A/S v. Genencor Int’l, Inc., 474 F. Supp. 2d 592 (D. Del. 2007) .................................................................... 22
Presidio Components, Inc. v. Am. Technical Ceramics Corp., 702 F.3d 1351 (Fed. Cir. 2012) .................................................................... 29, 30
ReadyLink Healthcare v. Cotton, 126 Cal. App. 4th 1006 (2005) ........................................................................... 52
Riles v. Shell Exploration & Prod. Co., 298 F.3d 1302 (Fed. Cir. 2002) .......................................................................... 19
Robert Bosch LLC v. Pylon Mfg. Corp., 659 F.3d 1142 (Fed. Cir. 2011) .............................................................. 21, 22, 25
Ruckelhaus v. Monsanto Co., 467 U.S. 986 (1984) ............................................................................................ 52
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TABLE OF AUTHORITIES – Continued
Page(s)
ix
Stanley v. Univ. of S. Cal., 13 F.3d 1313 (9th Cir. 1994) .............................................................................. 43
SynQor, Inc. v. Artesyn Technologies, Inc., __ F.3d __, 2013 WL 950743 (Fed. Cir. Mar. 13, 2013) ................................... 36
Titan Tire Corp. v. Case New Holland, Inc., 566 F.3d 1372 (Fed. Cir. 2009) .......................................................................... 16
United States v. Microsoft Corp., 253 F.3d 34 (D.C. Cir. 2001) .............................................................................. 42
Vacco Indus., Inc. v. Van Den Berg, 5 Cal. App. 4th 34 (1992) ................................................................................... 51
Web Graphics, Inc. v. Jos. Hunkeler, 682 F.2d 59 (2d Cir. 1982) ................................................................................. 46
Western Directories, Inc. v. Golden Guide Directories, Inc., 2009 WL 1625945 (N.D. Cal. June 8, 2009) ...................................................... 51
Whyte v. Schlage Lock Co., 101 Cal. App. 4th 1443 (2002) ........................................................................... 47
Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7 (2008) ................................................................................................ 28
Wyndham Resort Dev. Co. v. Bingham, 2010 WL2720920 (E.D. Cal. Jul. 8, 2010) ......................................................... 54
STATUTES:
28 U.S.C. § 2111 ...................................................................................................... 42
35 U.S.C. § 282 ........................................................................................................ 35
35 U.S.C. § 307(a) ................................................................................................... 36
Cal. Civ. Code § 3246.2(a) ...................................................................................... 40
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TABLE OF AUTHORITIES – Continued
Page(s)
x
Cal. Civ. Code § 3426 .............................................................................................. 45
Cal. Civ. Code § 3426.1 ........................................................................................... 39
Cal. Civ. Code § 3426.2 ..................................................................................... 39, 51
Cal. Civ. Code § 3426.2(a) .......................................................................... 45, 46, 52
Cal. Civ. Code § 3426.2(b) ...................................................................................... 58
Cal. Civ. Code § 3426.3 ........................................................................................... 58
RULES:
Fed. R. App. P. 10(a) ................................................................................................. 3
Fed. R. Civ. P. 8(a)(3) .............................................................................................. 32
OTHER AUTHORITIES:
2 John Norton Pomeroy, A Treatise on Equitable Remedies § 1979 (2d ed. 1919) ........................................................................................... 29
C. Chien & M. Lemley, Patent Holdup, the ITC, and the Public Interest, 98 Cornell L. Rev. 1 (2012) ................................................................................ 24
Oxford English Dictionary (online ed. 2013) .......................................................... 36
Restatement (Third) of Unfair Competition § 44 cmt. b (1995) ........................ 52, 53
Case: 13-1210 Document: 46 Page: 11 Filed: 03/26/2013
xi
STATEMENT OF RELATED CASES
No appeal in or from the same proceeding in the lower court was previously
before this Court or any other appellate court.
The same parties are involved in a different lawsuit, the appeal from which
is currently pending before this Court: A10 Networks, Inc. v. Brocade
Communications Systems, Inc., No. 2012-1542 (Fed. Cir.).
Case: 13-1210 Document: 46 Page: 12 Filed: 03/26/2013
IN THE
United States Court of Appeals for the Federal Circuit
___________________________________
BROCADE COMMUNICATIONS SYSTEMS, INC., and FOUNDRY NETWORKS, LLC, Plaintiffs-Appellees,
v.
A10 NETWORKS, INC., Defendant-Appellant.
and
LEE CHEN, RAJKUMAR JALAN, RON SZETO, and STEVE HWANG, Defendants.
___________________________________
Appeal from the United States District Court for the Northern District of California Case No. 2:06-cv-13936
Magistrate Judge Paul S. Grewal ___________________________________
BRIEF FOR APPELLEES ___________________________________
This appeal arises from a textbook case of intellectual property theft, found
by a properly instructed jury after an extensive trial. Appellee Brocade
Communications Systems and its subsidiary, Foundry Networks, design and
manufacture advanced network components. Beginning in 2004, several high-
level employees left Foundry and later started a competing business—A10
Networks, the defendant below and appellant here. Rather than developing a new
product from scratch, the former employees stole the technology they had worked
on while at Foundry and used it to build competing products. Brocade later
Case: 13-1210 Document: 46 Page: 13 Filed: 03/26/2013
2
discovered the theft and sued A10 for misappropriation of trade secrets, patent
infringement, copyright infringement, and other business torts. After a three-week
trial, a jury found A10 liable on all theories tried. The District Court, after
considering the trial record and additional evidence submitted by A10, then entered
two narrow permanent injunctions—one enjoining A10’s ongoing use of Brocade’s
trade secrets and the other enjoining A10’s patent infringement.
A10 now appeals entry of both injunctions in an effort to continue its
misappropriation, claiming that the District Court erred in its careful application of
the traditional equitable factors. None of the complaints A10 raises has merit, let
alone demonstrates that the District Court abused its discretion. To the contrary,
the District Court properly concluded that Brocade will be irreparably injured if
A10 is allowed to continue using the intellectual property that it stole, and the court
properly concluded that the equities favored an injunction. The facts of this case
fall within the heartland of the Patent Act’s domain. If these facts do not justify an
injunction (particularly the narrowly crafted injunction the District Court entered),
it is hard to imagine facts that would. Similarly, the District Court’s trade secret
injunction is supported by substantial evidence—especially the District Court’s
well-supported factual finding that Brocade’s trade secrets remain just that, secret.
This Court should affirm the District Court’s entry of both injunctions.
Case: 13-1210 Document: 46 Page: 14 Filed: 03/26/2013
3
COUNTERSTATEMENT OF THE ISSUES
The issues presented are:
1. Whether the District Court abused its discretion by entering a
permanent patent injunction after the jury found that A10 had infringed four claims
in three Brocade patents and the District Court found that all the traditional
equitable factors favored an injunction.
2. Whether the District Court abused its discretion by entering a
permanent trade secrets injunction after the jury found that A10 had
misappropriated four Brocade trade secrets, the District Court found that the trade
secrets remained confidential, and A10 failed to provide any evidence that it had
independently developed the secrets.
COUNTERSTATEMENT OF THE FACTS1
A. Foundry Develops Innovative Technologies And Captures A High-End Market Niche.
Foundry is a classic Silicon Valley success story. Founded in 1996 by four
engineers, including defendant Lee Chen, Foundry invented and sold networking
communications equipment. JA12089; JA31070-71. With its introduction of
1 The joint appendix materials cited in this brief are all part of the record on appeal. Just before this brief was filed, A10 acknowledged that its brief cites to documents that were not filed in the district court. Those documents are not part of the record on appeal, see Fed. R. App. P. 10(a), and are not properly included in the joint appendix. Brocade reserves the right to seek appropriate relief from this Court once it is able to determine the extent of the problem.
Case: 13-1210 Document: 46 Page: 15 Filed: 03/26/2013
4
ServerIron, Foundry created the market for a new type of networking device
known as an application delivery controller, or ADC. ADCs accelerate large,
geographically dispersed networks by ensuring that content is delivered as
efficiently and reliably as possible. Foundry’s ServerIron became known for its
speed and availability, JA10448, and met with great success in the marketplace.
The product captured a high-end niche of customers with stringent performance
needs, including financial institutions, hospitals, and internet service providers.
JA10444.
ServerIron’s success was due in substantial part to the inventions—both
patents and trade secrets—at issue in this lawsuit. Foundry’s patents covering
Global Server Load Balancing (GSLB) and High Availability (HA) techniques
proved to be market differentiators, and were the result of substantial research and
development expense. JA10443; JA10373-94; JA10395-401. The GSLB patents
at issue in this case (numbers 7,454,500 and 7,581,009) differentiated the
ServerIron product line by permitting more intelligent handling of incoming
network requests, leading to more efficient server usage and an improved user
experience. JA10385; JA10387. The HA patent (number 7,558,195) successfully
reduced lost data and interruptions in service—extremely important attributes for
Foundry’s high-end customers. See, e.g., JA10395-97; JA10449. Foundry and
Brocade developed their entire product marketing strategy around these high
Case: 13-1210 Document: 46 Page: 16 Filed: 03/26/2013
5
performance features, positioning ServerIron for the “high performance niche in
the markets.” JA10444; JA10467. Brocade’s customers continue to seek out
ServerIron for its patented features today. JA10385; JA10387; see also JA10400-
01; JA10816-17; JA10829-30; JA10846; JA10855; JA10862; JA10873; JA11373,
JA11414-16.
Foundry’s trade secrets also substantially improve the speed, security,
reliability, and other critical aspects of ServerIron. JA10641; JA10646-48;
JA10661. The trade secrets at issue here differentiate Foundry’s technology from
that of its competitors and were created over the course of many years. See, e.g.,
JA10659; JA10674; JA10619.
B. A10 Steals Foundry’s Intellectual Property And Develops Competing Products.
Chen and another defendant—Rajkumar Jalan—were the lead architects
who developed ServerIron for Foundry. JA11213; JA12093-95. After working on
ServerIron for many years, Chen decided in 2004 to “go out and have [his] own
business.” JA12109. He told Foundry’s CEO that he planned to build a “security
product” that would not compete with ServerIron. Id. But only a few months
later, Chen and the new company he founded upon leaving Foundry—now called
A10 Networks2—were covertly developing a product called the AX Series to
compete directly with ServerIron. Indeed, A10’s internal sales plan for the AX 2 A10 was originally called Raksha Networks.
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6
Series described “[t]arget[ing] Foundry customers” and “attacking” ServerIron
accounts. JA31066-67; see JA12039-40. The “security product” that Chen had
referenced as his reason for leaving Foundry was a commercial failure. JA12020.
To develop the AX Series as a competing product to ServerIron, Chen
recruited other Foundry employees to join him at A10. All of the other individual
defendants in this case were hired by A10 in the months after Chen left Foundry.
See JA31533-34. This team of alumni built the AX Series for A10 using
intellectual property they took with them from Foundry. JA31540-43.
A10 hired Ron Szeto, for example, to work as the Director of Software
Engineering. JA11600. While at Foundry, Szeto had unbridled access to
Foundry’s source code repository. JA11570. Two days before leaving Foundry
for A10, he downloaded thousands of source code files—including files containing
Foundry’s trade secrets—to his work computer and apparently transferred them to
a USB drive. JA11718-19; see also JA11594. There were still Foundry source
code files on his laptop while he was using it at A10 to “develop” the AX Series.
JA11572-76; JA11594-95.
In a similar fashion, Liang Han checked out hundreds of source code files
from Foundry’s repository just days before leaving Foundry for A10. The
downloaded files contained both trade secrets and copyrighted source code.
JA11733-34; see JA10583; JA10594; JA10639-40; JA10674. Han later accessed
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7
his personal e-mail account from the Foundry computer where he had downloaded
the files. JA11734. And he testified at trial that he had copied and pasted a “large
portion” of one of those downloaded files (containing copyrighted code) directly
into the source code of the AX Series. JA10974.
As these examples and others presented at trial show, A10 did not develop
the AX Series on its own. It was able to cobble together a passable competitor to
Foundry’s ServerIron products quickly only because it stole Foundry’s patented
inventions, copyrighted source code, and trade secrets.
A10 then used Foundry’s intellectual property to invade the high-end market
niche Foundry had created. A10 “[t]arget[ed] * * * Foundry customers” and
“attack[ed]” both “ServerIron accounts” and “Foundry.” J31066-67. Chen agreed
that A10’s plan was to “attack Foundry and target its customers who have the
Foundry ServerIron.” JA12039-40; see also JA31066-67; JA10467; JA12456;
JA31226-27. Foundry’s inventions covered (in A10’s words) “key features” that
allowed A10 to appeal to that market segment. See JA30048; JA30462; See, e.g.,
JA10844-45; JA10871; JA12356-58; JA12373; JA12461-62. All told, A10 sold
tens of millions of dollars in AX Series products to existing Foundry customers.
See JA31429-39; see also JA31228-345. In addition to cutting into Brocade’s
sales of ServerIron, that unfair competition has caused enormous—but difficult to
quantify—downstream harm by depriving Brocade of sales opportunities for
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8
complementary products, service contracts, replacements, upgrades, and parts.
See, e.g., JA122; JA10453; JA12039-41; JA30009-10.
C. Brocade Files Suit, The Jury Finds A10 Liable, And The District Court Enjoins A10 From Continuing To Infringe And Misappropriate Brocade’s Intellectual Property.
After the AX Series was released, Brocade sued A10 and the individual
defendants for (among other things) patent infringement, copyright infringement,
trade secret misappropriation, and intentional interference with contract. The case
went to trial on these claims. After a three-week trial, the jury found that A10 had
directly infringed four claims from three patents and awarded Brocade millions of
dollars in compensatory damages. JA121-22. (The exact amount is disputed and
is set for a retrial.) The jury also found that A10 had infringed Brocade’s
copyrighted source code and awarded $60,000,000 in damages. JA122-23.
In addition to finding copyright and patent infringement, the jury found that
A10 had misappropriated four of Brocade’s trade secrets. JA124-25. It awarded
one dollar in damages for that misappropriation—evidently in adherence to the
District Court’s instruction not to award duplicative damages (JA13492), which
Brocade highlighted in closing argument (JA13382-83). Finally, the jury found
both A10 and Chen liable for intentional interference with contract. It awarded
one dollar in compensatory damages, and, finding that both A10 and Chen had
Case: 13-1210 Document: 46 Page: 20 Filed: 03/26/2013
9
“acted with malice, oppression, despicable conduct or fraud,” awarded $500,000 in
punitive damages against each of them. JA127.
A10 moved for judgment as a matter of law or a new trial. The District
Court affirmed all the jury’s findings with respect to copyright and trade secrets.
JA56-68; JA85-94. And it agreed with Brocade that there was substantial evidence
supporting the jury’s verdict of patent infringement. JA68-75. The District Court
concluded, however, that a new trial on patent damages was necessary because the
jury’s verdict form was inconsistent and it was unclear how the jury had
apportioned damages between reasonable royalties and lost profits. JA85. The
District Court also ordered a new trial on punitive damages against A10 and Chen,
because—even though Brocade “produced substantial evidence that a punitive
damages award is warranted”—the ratio between the jury’s compensatory damages
award and its punitive damages award was too high to sustain it. JA102. The new
jury trial on patent and punitive damages is set to begin on May 20, 2013.
The District Court then entered two permanent injunctions: one to protect
against further patent infringement and one to protect against further trade secret
misappropriation. The patent injunction was a “narrowly tailored injunction to
protect [Brocade’s] rights to exclusivity against A10’s infringement.” JA120.
Noting that “there is no presumption in favor of an injunction in patent
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10
infringement cases,” the court carefully applied the four factors enumerated by the
Supreme Court in eBay, Inc. v. MercExchange, LLC, 547 U.S. 388 (2006). JA106.
In addressing the irreparable harm factor, the court expressed doubt that the
“causal nexus” standard articulated by this Court in Apple, Inc. v. Samsung
Electronics Company (Apple II), 695 F.3d 1370, 1376 (Fed. Cir. 2012), applied to
every request for a permanent injunction in every context. JA108. But the court
concluded that it did not need to decide whether that standard should apply here.
The court assumed it applied, and then held that Brocade had “proven a sufficient
nexus between the established infringement and irreparable harm from the loss of
its exclusive right to practice its patents.” JA109. The court explained how, in the
specific circumstances of this case, Brocade’s loss of exclusivity constituted
irreparable harm: “In a situation such as this, where Brocade has shown that it
practices its patent, that A10 is a direct competitor, and that Brocade does not
license its patents, Brocade has shown that it suffers the type of irreparable harm
that a permanent injunction is intended to remedy.” JA111. The District Court
also found that all of the other eBay factors favored a permanent injunction.
JA111-15.
In determining the appropriate scope of the patent injunction, the District
Court found that a narrow injunction was warranted. JA116. In particular, the
court opted not to indiscriminately bar sales of the AX Series, reasoning that “a
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patentee may exercise her exclusivity rights only over her patented invention.”
JA117. The court therefore only enjoined sales of “AX series devices that include
the software and hardware * * * that the jury found infringes claim 25 of the ‘500
Patent, claims 13 and 24 of the ‘009 Patent, and claim 1 of the ‘195 patent.” Id.
The court also “clarifie[d] that the injunction applies only to future sales and use,”
so that existing customers who already owned infringing AX Series devices would
“not be affected.” JA118.
The second permanent injunction the District Court entered was to prevent
further use and misappropriation of Brocade’s trade secrets. In considering
whether this injunction should issue, the court “employ[ed] California law”
because the injunction would “affect[ ] the substantive rights of the parties.” JA26.
Though arguably not mandated, the court required Brocade to demonstrate
irreparable harm under California law by showing “that remedies at law are
inadequate, and that other equitable considerations warrant entry of an injunction.”
JA28. It found that Brocade satisfied this standard. Surveying the trial evidence,
the court found that “Brocade showed that the trade secrets improve performance
of the ServerIron product and thus aid in Brocade’s pursuit of sales to customers.”
JA44. Under California law, “[c]ommercial advantage is grounds for finding
irreparable harm.” Id. In addition, A10’s continued use of the trade secrets
effectively “dissolve[ed] the trade secret status of Brocade’s features,” a harm that
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12
money damages alone could not remedy. Id. Based on these and other equitable
considerations, the court entered a “narrowly tailored” injunction that would not
prohibit A10 from reverse engineering the trade secrets in a clean room.
The District Court considered and rejected the two arguments A10 offered
against a trade secrets injunction: that the trade secrets had become public and that
A10 could have independently developed the trade secrets by now if it had tried.
As to the first argument, the court exhaustively considered the evidence A10
submitted in opposing the injunction, but concluded that it did not prove the trade
secrets were now public. Just the opposite, “Brocade’s trade secrets remain
confidential and have not become generally known.” JA41. The court rejected the
second argument as well. Even granting the legally incorrect premise—that
evidence a party could have developed a trade secret independently, rather than
evidence it actually did so, is a basis to refuse an injunction—the court explained
that A10 did not even show that it could have developed the trade secrets at issue.
A10 pointed only to the testimony of Brocade’s damages expert. But, as the court
explained, “A10 conflates [the expert’s] head start testimony regarding the
minimum amount of time it would have taken A10 to independently develop the
trade secrets with evidence that A10 could have” developed them in the same
amount of time. JA42 (emphasis added). In other words, A10 was treating the
minimum like a maximum. The District Court thus entered a “narrowly tailored”
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injunction to prevent A10’s continuing use of the misappropriated trade secrets.
JA49.
A10 moved to stay or modify both injunctions. The District Court denied
A10’s motions to stay, but it modified the trade secret injunction to “allow A10 to
continue possession and use of the trade secrets for the sole purpose of providing
service to its current customers.” JA18. The court also clarified that the trade
secret injunction did not apply to “A10’s attorneys and litigation counsel,” and
provided a more specific description of Trade Secret 11. JA19-21.
This appeal followed.
SUMMARY OF ARGUMENT
The District Court’s thorough opinions explain why the narrowly tailored
injunctions it crafted to fit the facts of this case are justified. Brocade’s former
employees stole their employer’s intellectual property and used it to develop
competing products. The jury found their new company, A10, liable for both
patent infringement and trade secret misappropriation. And the District Court
found that A10’s continued infringement and misappropriation would irreparably
injure Brocade. After carefully assessing these facts in light of the traditional
equitable factors, the District Court concluded that injunctive relief was warranted
to restore Brocade’s control over its intellectual property.
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A10’s scattershot efforts in this Court to cast doubt on the District Court’s
reasoning are wholly unavailing. The District Court did not “ignore” Apple II, as
A10 suggests; to the contrary, it applied the decision and properly found a causal
nexus between A10’s infringement and the harm targeted by the injunction:
Brocade’s loss of its exclusive right to practice its patents. This Court need not,
therefore, address whether the causal nexus standard applies in this case. If,
however, the Court decides to reach the question, it should find that the causal
nexus test does not apply because (1) the District Court entered a “narrowly
tailored” injunction that does not cover an entire product, and (2) the case involves
a permanent, rather than a preliminary, injunction.
The District Court also correctly concluded that the equities favor an
injunction. A10 has represented to the public and this Court that it has already
redesigned its products to remove the infringing features. Because the District
Court’s injunction targets only those features, A10 is free to sell its redesigned
products without them. The substantial harm that continued infringement would
cause Brocade in the absence of an injunction heavily outweighs whatever minimal
harm the injunction may cause A10. And the public interest favors an injunction
too. The District Court’s carefully circumscribed injunction protects Brocade’s
intellectual property rights and fosters innovation without unduly burdening third
parties.
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A10’s challenge to the trade secret injunction is likewise flawed. The
District Court found that Brocade’s trade secrets remain secret, and A10 has not
cast doubt on that finding. Brocade thus has a continuing interest in preventing
A10 from using its intellectual property. That continuing interest will not expire
until the trade secrets become public. A10’s contrary argument is based on a
fundamental misreading of settled California law. Finally, for reasons similar to
those justifying the patent injunction, the equities favor an injunction to halt A10’s
continued misappropriation of Brocade’s trade secrets.
Both of the District Court’s injunctions should be affirmed.
ARGUMENT
I. STANDARD OF REVIEW
The District Court’s two injunctions are reviewed only for abuse of
discretion. i4i Ltd. P’ship v. Microsoft Corp., 598 F.3d 831, 861 (Fed. Cir. 2010),
aff’d, 131 S. Ct. 2238 (2011). Within that overall rubric, underlying findings of
fact must be upheld unless they are clearly erroneous, E.I. du Pont de Nemours &
Co. v. MacDermid Printing Solutions, LLC, 525 F.3d 1353, 1358 (Fed. Cir. 2008);
pure questions of law are reviewed de novo, id.; and judgment calls are entitled to
substantial deference, Mikohn Gaming Corp. v. Acres Gaming, Inc., 165 F.3d 891,
895 (Fed. Cir. 1998). Ultimately, abuse of discretion is “a deferential standard of
review that requires a showing that ‘the court made a clear error of judgment in
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weighing relevant factors or exercised its discretion based upon an error of law or
clearly erroneous factual findings.’ ” Titan Tire Corp. v. Case New Holland, Inc.,
566 F.3d 1372, 1375 (Fed. Cir. 2009) (citation omitted). Each injunction must be
reviewed separately; the invalidity of one would not affect the validity of the other.
II. THE DISTRICT COURT DID NOT ABUSE ITS DISCRETION BY ENTERING A PERMANENT PATENT INJUNCTION
The Supreme Court held in eBay that the decision to grant injunctive relief
in patent cases “rests within the equitable discretion of the district courts,” and that
“such discretion must be exercised consistent with traditional principles of equity.”
547 U.S. at 394. The Court gave the “traditional four-factor framework” that
governs equitable relief: “A plaintiff must demonstrate: (1) that it has suffered an
irreparable injury; (2) that remedies available at law, such as monetary damages,
are inadequate to compensate for that injury; (3) that, considering the balance of
hardships between the plaintiff and defendant, a remedy in equity is warranted; and
(4) that the public interest would not be disserved by a permanent injunction.” Id.
at 391. In this case, after affirming the jury’s verdict of infringement,3 the District
Court carefully considered each of these four factors, and found that each favored
the injunctive relief sought by Brocade. The Court’s analysis was not affected by
3 In this appeal, A10 could have challenged the merits of the infringement finding as a basis for overturning the injunction. See Helifix Ltd. v. Blok-Lok, Ltd., 208 F.3d 1339, 1345 (Fed. Cir. 2000). It elected not to do so, and as a result, no merits issues related to infringement or validity are presently before this Court.
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any error, clear or otherwise. Its faithful application of the eBay factors and this
Court’s post-eBay precedents to the facts of this case should be affirmed.
A. The District Court Did Not Abuse Its Discretion In Holding That Brocade Would Be Irreparably Harmed Absent An Injunction.
The District Court’s irreparable harm analysis principally focused on three
facts. First, Brocade’s own ServerIron products practice the four claims of the
three patents that A10 was found to infringe. JA110. There was ample testimony
at trial to substantiate that fact. E.g., JA10384-85; JA10816-17; JA10846;
JA11373. Second, there was no “evidence that Brocade licenses any of the
technology in the patents to other parties.” JA110. Brocade’s business model is to
develop and practice its intellectual property, not to license it. Third, Brocade and
A10 are “in direct competition.” JA111. Indeed, Chen himself testified that A10
and Brocade are “definitely competitors.” JA12039. And the District Court
credited the testimony of a Brocade employee that the “ ‘high performance’
products Brocade and A10 offer” should be “distinguished” from “products offered
by companies with a larger market share.” JA111 (citing JA10444). Brocade’s
expert identified 165 customers who purchased the infringing product after having
been Brocade customers. JA111 (citing JA12337; JA12363). Thus, Brocade and
A10 were not just competitors—they were fierce competitors within a niche
market.
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In light of these three facts, the District Court concluded that Brocade has
suffered “irreparable harm from the loss of its exclusive right to practice its
patents.” JA109. The Court explained: “In a situation such as this, where
Brocade has shown that it practices its patent, that A10 is its direct competitor, and
that Brocade does not license its patents, Brocade has shown that it suffers the type
of irreparable harm that a permanent injunction is intended to remedy.” JA111;
see also JA12. The District Court acted well within its discretion in determining
that these circumstances warranted a “narrowly tailored” injunction, JA120, and
A10’s challenges to the injunction are meritless.
1. Brocade established that it would be irreparably harmed and that there was a causal nexus between the harm it faced and A10’s infringement.
A10 first contends that “it was legal error for the district court not to apply
the causal nexus test.” A10 Br. 31. The premise of that argument is false:
Although the court did register “doubt” that a causal nexus “should be required for
all irreparable harms,” it expressly stated that it did not “have to decide this
broader question.” JA108-09. That was because, as the District Court explained,
Brocade had satisfied the causal nexus requirement by establishing a link between
A10’s infringement and the particular harm targeted by the injunction—that is,
Brocade’s loss of its right to exclude a direct competitor from using its patents,
patents that Brocade practices and does not license. See JA109-10. A10 is
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therefore flat wrong to assert that the District Court “directly ignore[d] this Court’s
mandate.” A10 Br. 31. To the contrary, the Court applied that mandate to the
circumstances of this case and, finding the standard satisfied, entered an injunction
accordingly.
A10’s argument does not improve from this first misstep. Instead, it
continues with a series of mistaken assertions about what the causal nexus
requirement is and how it applies. In Apple I and Apple II, this Court explained
that a patentee of a product component is only entitled to injunctive relief if the
patentee shows that it will be irreparably harmed absent an injunction and that the
injury it would incur is causally related to infringement of its patent by the
defendant. Apple, Inc. v. Samsung Elecs. Co. (Apple I), 678 F.3d 1314, 1324 (Fed.
Cir. 2012); Apple II, 695 F.3d at 1374. Although framed as a “causal nexus”
requirement in Apple I and Apple II, the underlying principle appears to be a
longstanding one: that injunctions must be narrowly tailored to “fit the specific
adjudged violations.” Riles v. Shell Exploration & Prod. Co., 298 F.3d 1302, 1311
(Fed. Cir. 2002). For instance, if a patentee claims an injunction is necessary to
prevent irreparable harm in the form of a loss of market share, it makes sense for a
court to ask whether the patentee will lose market share as a result of the
defendant’s illegal conduct (in which case an injunction is appropriate) or as a
result of some other factor, like poor management (in which case it is not).
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The only “irreparable harm” that Apple asserted was lost sales, see Apple
Br. 19-24, Apple, Inc. v. Samsung Elecs. Co., No. 2012-1507, 2012 WL 3875603
(Fed. Cir. July 20, 2012), and so the Court addressed how a causal nexus inquiry
applied to that particular context. The Court held that, when the alleged harm is
“[s]ales lost to an infringing product,” the patentee must show that the “infringing
feature drives consumer demand.” Apple II, 695 F.3d at 1374-75 (citation
omitted). This requirement follows from the nature of the lost sales inquiry: To
prove that the patentee would have made a sale but for the infringement, it
generally is necessary to show that the patented features motivated the consumer’s
decision to buy from the infringer. If the consumer would have purchased the
product regardless of the infringing features, it can hardly be said that the
infringement caused the patentee to lose the sale.
But lost sales are not the only kind of irreparable harm that a patentee may
face. This Court has routinely recognized that injunctions are appropriate to
prevent many types of irreparable harm, such as loss of goodwill, injury to
reputation, loss of brand-name recognition, loss of exclusivity, and market
saturation. See, e.g., Celsis In Vitro, Inc. v. CellzDirect, Inc., 664 F.3d 922, 930
(Fed. Cir. 2012); Acumed LLC v. Stryker Corp., 551 F.3d 1323, 1328 (Fed. Cir.
2008). Here, for example, the harm the District Court identified was Brocade’s
loss of exclusivity in connection with practicing its patents. The District Court
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imposed the permanent injunction for purposes of preventing that harm, not for the
purpose of preventing lost sales, as was the case in Apple II.4
That fact makes Apple II’s discussion of how the causal nexus test applies to
a lost-sales injury irrelevant. When the irreparable injury is something other than
lost sales, the particulars of how the causal nexus test was applied in Apple II will
not apply. And so, for example, if the harm at issue is loss of goodwill, a patentee
would have to show “some causal nexus” between its goodwill loss and the
infringement to get an injunction; if the harm is loss of brand-name recognition,
the causal nexus would have to be between that recognition and the infringement.
In each of these cases, the question whether “the infringing feature drives
consumer demand for the accused product” will not be relevant to establishing the
particular causal nexus.
4 Although the District Court did not rely on lost sales to issue the injunction, Brocade also showed that it was losing sales and needed an injunction to prevent that harm. The features that customers demanded in the AX devices were the very same features that A10 had stolen from Brocade. As A10 itself explained, HA was a “very critical” feature of the AX Series, and A10 would be “shut out” of the market for “the bigger fish” without GSLB. JA31104; JA31158; see JA31006-7 (GSLB is a “key strategic product” of A10). A10 implemented these “[k]ey features of the AX Series,” JA30048, by infringing Brocade’s patents. A10 then sold tens of millions of dollars in AX Series products with the infringing features to existing Foundry customers. See JA31429-39; see also JA31228-345. Though not necessary for this Court to reach, an injunction would be warranted for this reason, too. See Robert Bosch LLC v. Pylon Mfg. Corp., 659 F.3d 1142, 1156-57 (Fed. Cir. 2011).
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So too here. The harm to which the injunction is addressed is Brocade’s loss
of exclusivity. As the District Court explained, that harm flows from the fact that
Brocade practices its patents, does not license its patents, and competes directly
against A10. JA12; JA111. Because those findings were amply supported, see,
e.g., JA10384-85; JA10444; JA10816-17; JA10846; JA11373; JA12039; JA12337;
JA12363, it was not an abuse of discretion for the District Court to find that
Brocade’s loss of its exclusive right to practice its own patents was irreparable
harm. And the “causal nexus” between that harm and the infringement, as that
court found, is direct and unmistakable.
A10’s chief response is to claim that “loss of exclusivity” can never qualify
as irreparable harm to a patentee. A10 Br. 28-30. But that contention is exactly
the sort of “categorical rule” that the Supreme Court rejected in eBay, a case that
A10 cites (at 28-29) but does not heed. As courts have recognized when faced
with similar arguments, eBay “d[oes] not state that loss of the right to exclude
could not be irreparable harm.” Novozymes A/S v. Genencor Int’l, Inc., 474 F.
Supp. 2d 592, 612 (D. Del. 2007). In fact, this Court has repeatedly emphasized
that “it does not follow [from eBay] that courts should entirely ignore the
fundamental nature of patents as property rights granting the owner the right to
exclude.” Robert Bosch LLC v. Pylon Mfg. Corp., 659 F.3d 1142, 1149 (Fed. Cir.
2011). Rather, “[a] patentee’s right to exclude is a fundamental tenet of patent
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law.” Edwards Lifesciences AG v. Corevalve, Inc., 699 F.3d 1305, 1314 (Fed. Cir.
2012). That is why, “[a]bsent adverse equitable considerations, the winner of a
judgment of validity and infringement may normally expect to regain the
exclusivity that was lost with the infringement.” Id. Given this legal landscape,
the District Court did not abuse its discretion by finding that Brocade’s loss of its
exclusive right to practice its patents was irreparable harm.
This Court has already held as much. In Fresenius Medical Care Holdings,
Inc. v. Baxter International, Inc., 2008 WL 928496 (N.D. Cal. Apr. 4, 2008), the
district court had held that the loss of “the legal right to exclude, including the right
to control the terms of any licensing arrangement,” is an “irreparable injury” that
“favors an injunction.” Id. The infringer appealed the grant of the permanent
injunction, claiming that the district court’s opinion did not comport with eBay.
The Federal Circuit rejected this argument: “The district court performed the
appropriate analysis required by eBay.” Fresenius USA, Inc. v. Baxter Int’l, Inc.,
582 F.3d 1288, 1302 (Fed. Cir. 2009). The same is true here.
A10 responds with the argument that “loss of exclusivity” can be shown
“whenever infringement is found,” and so the District Court’s analysis in this case
“revert[s] back to the pre-eBay days.” A10 Br. 29. This argument entirely ignores
what the District Court actually did: The District Court did not say that loss of the
right to exclude would qualify as irreparable harm in every case. Its holding was
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much narrower: “In a situation such as this,” the District Court stated—where (1)
Brocade has shown that it “practices its patent,” (2) “A10 is a direct competitor” in
a niche market, and (3) “Brocade does not license its patents”—Brocade has
suffered an irreparable injury, because “A10’s infringement prevents it from
practicing its patents exclusively.” JA110-11. This is exactly the sort of case-
specific, discretionary decision that eBay authorizes district courts to make. In
many patent cases, one or more of those three conditions will not be met. For
example, loss of exclusivity might not qualify as irreparable harm to a patent
assertion entity. See C. Chien & M. Lemley, Patent Holdup, the ITC, and the
Public Interest, 98 Cornell L. Rev. 1, 10 (2012) (since eBay was decided, patent
assertion entities have been denied injunctions in over 90 percent of cases when the
injunctions are contested). And loss of exclusivity may not qualify if the infringer
is not a direct competitor, or if the patentee has a licensing program.
That last fact distinguishes this case from the situation in Apple v. Samsung.
As the district court noted in that case, “Apple’s licensing activity suggests that
Apple does not believe that these patents are priceless.” Apple, Inc. v. Samsung
Elecs. Co., 2012 WL 6569786, at *10 (N.D. Cal. Dec. 17, 2012). Apple had
licensed, to competitors such as Nokia and IBM, the exact patents it sought to
enjoin Samsung from infringing. Id. It had even licensed patents to Samsung
before. Id. Indeed, Apple’s top licensing executive testified that Apple had
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licensed intellectual property covering its “unique user experience.” Id. These
facts demonstrated that Apple “felt that money was a fair trade for the right to
practice its patents, and that Apple has in the past been willing to extend license
offers to Samsung.” Id.
Brocade feels and acts differently, and those differences matter. This Court
recognized as much in Broadcom Corp. v. Qualcomm Inc., 543 F.3d 683 (Fed. Cir.
2008), where it held that the district court had not abused its discretion when it
“considered [the patentee’s] general policy of not licensing its patents and the harm
that would ensue from a compulsory license to its most significant competitor.” Id.
at 702. That same principle applies with force here.
A10’s claim, at bottom, is simply an argument for a broad, “categorical rule”
that the loss of the exclusive right to practice a patent, even by a practicing patent
owner, can never qualify as irreparable harm in any circumstances. That sweeping
claim would require this Court to “ignore the fundamental nature of patents as
property rights granting the owner the right to exclude.” Bosch, 659 F.3d at 1149,
and to forget that the right to exclude is the “heart of the patent grant.”
ActiveVideo Networks, Inc. v. Verizon Comm’ns, Inc., 694 F.3d 1312, 1341 (Fed.
Cir. 2012). As a result, A10’s request is directly foreclosed by eBay and this
Court’s cases. To deny an injunction here would effectively amount to a
compelled license from Brocade to an adjudged infringer—and the company’s
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main competitor—even though Brocade’s business model is based on developing
and practicing its intellectual property, not licensing it. Indeed, the extensive trial
record contains no evidence of a Brocade licensing program of any kind. It would
be hard to see what is left of the Patent Act’s promised “right to exclude” if an
injunction were not appropriate in these circumstances. The patent injunction
should be affirmed.
2. In the alternative, it is not necessary to establish a causal nexus in the context of a narrowly tailored permanent injunction that does not cover an entire product.
The District Court properly sidestepped the question of whether the causal
nexus standard even applies to this case, because the standard was met here. This
Court likewise has no need to examine the issue. If, however, it does reach the
question, it should affirm the injunction on the ground that the causal nexus test is
simply inapplicable under the circumstances of this case.
This Court’s decision in Apple II is distinguishable in two crucial respects.
First, the injunction in Apple II was much broader than the injunction against A10.
The district court had enjoined Samsung from making, using, or selling the Galaxy
Nexus phone. Apple, Inc. v. Samsung Elecs. Co., 877 F. Supp. 2d 838, 918 (N.D.
Cal. 2012). Its injunction banned the entire product, not just the features of that
product that infringed Apple’s patents. Samsung’s brief in the Federal Circuit
opened with a discussion about the (over)breadth of the injunction, Appellant Br.
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at 1, Apple Inc. v. Samsung Elecs. Co., No. 2012-1507, 2012 WL 3134431 (Fed.
Cir. July 16, 2012), and the Court’s opinion highlighted this point as well.
Apple II, 695 F.3d at 1373. The Court’s discussion of the need for a causal nexus
was designed to ensure that the scope of the injunction was appropriately tailored
to the scope of the patented claims—and accordingly, to prevent the harm that
flowed from infringement of those claims.
That same concern does not arise here, where the District Court’s narrow
and well-tailored injunction does not ban sales of the AX Series device altogether.
JA115-19. The Court enjoined only sales of any AX Series device “that includes
features that infringe” the relevant patent claims. JA120. Indeed, the Court
specifically narrowed the injunction to ensure that Brocade’s “exclusivity” would
not “extend[]” to “features that are not covered by [the] patent,” thereby addressing
the underlying concern animating the Court’s decisions in Apple I and Apple II.
JA117. The narrowness of the injunction ensures that Brocade is not attempting to
“leverage its patent for competitive gain.” Apple II, 695 F.3d at 1375. And it
renders the causal nexus test both unnecessary and irrelevant.
Second, the causal nexus requirement was articulated in the context of a
preliminary injunction. But preliminary and permanent injunctions “are distinct
forms of equitable relief that have different prerequisites and serve entirely
different purposes.” Lermer Germany GmbH v. Lermer Corp., 94 F.3d 1575, 1577
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(Fed. Cir. 1996). A preliminary injunction is an “extraordinary remedy never
awarded as of right.” Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7, 22, 24
(2008). It issues before the merits are definitively resolved. A permanent
injunction, in contrast, follows a full adjudication on the merits and a finding of
patent infringement.
Even if the causal nexus requirement is an appropriate safeguard in the
preliminary injunction context,5 it is unwarranted in the permanent injunction
context. A10 has already had an opportunity to present its case to a jury, and the
jury found that its products contained features that infringe Brocade’s patents.
Given the prevalence of complex products encompassing multiple patents, if the
Federal Circuit were to extend the causal nexus requirement to permanent
injunctions it would fundamentally alter the availability of equitable relief in patent
cases, and the Patent Act’s “right to exclude” would become illusory. Indeed, for
5 Although this panel is bound by Apple II, and this Court—like the District Court below—has no need to reach the question, Apple II was wrongly decided. The decision is inconsistent with this Court’s precedents, which have never rigidly insisted on proof of a causal nexus between lost sales and infringement as a prerequisite to injunctive relief. See, e.g., Broadcom, 543 F.3d at 702-03. It is also inconsistent with eBay, which rejected “categorical rule[s]” and “expansive principles suggesting that injunctive relief could not issue in a broad swath of cases.” 547 U.S. at 398. At most, a causal nexus requirement may be appropriate in the context of design patents, where it was first articulated, see Apple I, 678 F.3d at 1323-24. Extending that requirement to utility patents was a “major departure from the long tradition of equity practice” and should be corrected. eBay, 547 U.S. at 395 (Roberts, C.J., concurring). Brocade preserves these arguments for further review.
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more than a century, the Federal Circuit and Supreme Court have often affirmed
permanent injunctions for patents that do not cover every feature of an accused
product. E.g., Presidio Components, Inc. v. Am. Technical Ceramics Corp., 702
F.3d 1351 (Fed. Cir. 2012) (abuse of discretion to refuse permanent injunction
where patent covered only features of a capacitor); Broadcom, 543 F.3d at 701-702
(affirming permanent injunction where patents covered features of chipsets used in
mobile radio devices); Cont’l Paper Bag Co. v. E. Paper Bag Co., 210 U.S. 405,
406, 430 (1908) (affirming permanent injunction where patent covered only an
“improvement in paper bag machines”). Such “a major departure from the long
tradition of equity practice” should be rejected. eBay, 547 U.S. at 391.
B. Brocade’s Remedies At Law Are Inadequate.
The District Court also correctly found that Brocade’s loss of the right to
exclude A10 from using its inventions cannot be remedied by money damages.
The right granted by a patent “is not to practice the invention, but to exclude others
from practicing it.” 2 John Norton Pomeroy, A Treatise on Equitable Remedies
§ 1979, p. 4495 (2d ed. 1919). And that right “can only retain its attribute of
exclusiveness by a prevention of its violation. Anything but prevention takes away
the privilege which the law confers upon the patentee.” Cont’l Paper Bag Co., 210
U.S. at 430. That is why it has been long recognized that the “obvious method” of
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protecting the right to exclusivity “is by an injunction.” Pomeroy, supra, § 1979,
p. 4495.
A number of this Court’s recent decisions underscore that money damages
often cannot adequately compensate a patent holder for a loss of the right to
exclude. In Edwards Lifesciences, for example, the Court characterized the right to
exclude as a “fundamental tenet of patent law” and held that, absent countervailing
equitable considerations, “the winner of a judgment of validity and infringement
may normally expect to regain the exclusivity that was lost with the infringement.”
699 F.3d at 1314. The Court echoed this point in Presidio, where it observed that
the “historical practice of protecting the right to exclude through injunctive relief is
not surprising given the difficulties of protecting this right solely with monetary
relief.” 702 F.3d at 1362. Simply put, it is difficult to protect the statutory “right
to exclude through monetary remedies that allow an infringer to use an invention
against the patentee’s wishes.” eBay, 547 U.S. at 395 (Roberts, C.J., concurring)
(emphases in original); see also Acumed, 551 F.3d at 1328 (in light of patentee’s
right to exclude, “infringement may cause a patentee irreparable harm not
remediable by a reasonable royalty”).
The Court’s recognition of this basic point in those cases (and others) does
not mean that an injunction will automatically issue after a judgment of
infringement. In many cases, the balance of harms or the public interest will weigh
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31
against an injunction. See, e.g., Dun v. Lumbermen’s Credit Ass’n, 209 U.S. 20,
23-24 (1908) (affirming denial of copyright injunction based on balance of harms);
Bard Peripheral Vascular v. W.L. Gore & Assocs., 670 F.3d 1171, 1192-93 (Fed.
Cir. 2012) (affirming denial of patent injunction based on public interest), modified
on other grounds, 682 F.3d 1003 (Fed. Cir. 2012); Johnson & Johnson Vision
Care, Inc., v. CIBA Vision Corp., 712 F. Supp. 2d 1285, 1293 (M.D. Fla. 2010)
(denying patent injunction based in part on public interest). Nor does this mean
that courts should inevitably presume irreparable harm based solely on the loss of
exclusivity, regardless of the circumstances. Some patentees place little value on
the right to exclude others from using their inventions, and so would have little
room to complain when that right is diminished. For example, a patentee who has
promised to license his invention to all comers on reasonable and
non-discriminatory terms (e.g., Microsoft Corp. v. Motorola, Inc., 696 F.3d 872,
875-77 (9th Cir. 2012)) would have difficulty arguing that a reasonable royalty is
insufficient to make him whole.
This last point distinguishes the District Court’s injunction from the situation
in Apple, Inc. v. Motorola, Inc., 869 F. Supp. 2d 901 (N.D. Ill. 2012) (cited at A10
Br. 34, 35, 36, 37). There, Motorola had committed to license its patents on fair,
reasonable, and non-discriminatory terms. Id. at 914. The court treated that
commitment as an implicit acknowledgement that “a royalty is adequate
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compensation for a license to use that patent.” Id. Brocade, of course, has made
no such commitment; on the contrary, it has never licensed the intellectual property
at issue in exchange for a royalty.
A10’s other arguments are equally unavailing. The fact that Brocade
requested damages for past harm does not bar it from also seeking an injunction to
prevent future harm. See Fed. R. Civ. P. 8(a)(3) (a party may request relief in the
alternative or different types of relief). And the injunction covers harms that
cannot be remedied or undone by a money judgment—particularly the loss of
Brocade’s right to practice its patent exclusively and the accompanying loss of
product differentiation. JA112. A10’s argument that other types of harm (lost
market share, lost downstream sales) can be remedied by a money judgment is
simply beside the point. The parties are still litigating the extent of those harms,
and the District Court’s injunction accordingly did not rest on that basis.
C. The Balance Of Hardships Favors Brocade.
The balance of hardships tips heavily in Brocade’s favor. As the District
Court explained, Brocade would be substantially injured without an injunction.
The technology covered by the patents is a critical component of Brocade’s overall
marketing strategy. Yet without an injunction, Brocade cannot “exclusively
practice its patents” and preclude “a direct competitor” from infringing. JA113. If
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Brocade continues to be denied its exclusive right to use that technology, its entire
business model will be undermined.
A10, by contrast, is caused no harm by the narrowly tailored injunction.
A10 has crowed to the public in press releases that “the ruling will have no
material negative impact on [its] business or financial strength” because it claims
to have “completed development and testing of applicable, non-infringing elements,
and will ship AX Series products with the redesigned software immediately.”
JA30003; JA30005 (emphasis added). It has thus assured the public that it has
removed the infringing features from its products. Assuming those assurances are
true, the injunction will not impede A10’s sales or “imperil its business,” as A10
claim below, because the injunction covers only those removed features.
A10 says it must bear the cost of “deploying the redesign” and “explaining
to customers what impact the injunction would have.” A10 Br. 35. But it has
never attempted to quantify or substantiate those costs (the majority of which have
already been incurred), leaving the District Court and this Court with no basis for
determining how they should weigh in the balance of equities. A10’s complaint
about the “looming threat of contempt proceedings,” A10 Br. 35, is likewise
entitled to no weight. The threat of contempt is a necessary incident of every
injunction. If it were enough to tip the balance of hardships, injunctions could
never issue.
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Finally, A10 contends that the patents cover only “a few minor features” of
its devices, suggesting that the injunction imposes costs on A10 that are
“disproportionate both to the benefits to [A10] of having infringed and to the
harm” to Brocade. A10 Br. 36 (quoting Apple, 869 F. Supp. 2d at 917). But that
argument merely highlights the minimal impact of the injunction on A10: Because
of the patents’ narrow scope, A10 states that it was able to design around them
quickly and easily. JA10; JA13. That distinguishes this case from Apple v.
Motorola, where the court worried that a preliminary injunction would “force
Motorola to remove lucrative products from the market for as long as it took to
remove the infringing features * * * from its products, or to invent around the
infringing features.” 869 F. Supp. 2d at 917. Whether or not such a worry was
justified in Apple v. Motorola, it is unjustified here because A10 claims to have
already designed around the patented features. The harm Brocade would suffer in
the absence of an injunction thus far outweighs any negligible harm the injunctions
may cause A10.
D. The Injunction Serves The Public Interest.
The District Court correctly concluded that an injunction was in the public
interest, too. The key question here is “whether an injunction, both in scope and
effect, strikes a workable balance between protecting the patentee’s rights and
protecting the public from the injunction’s adverse effects.” i4i Ltd. P’ship, 598
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F.3d at 863. And there can be no doubt that the patent injunction does just that.
As the District Court explained, the public will still have access to A10’s products
because the injunction does not cover existing customers and because A10 has
allegedly developed non-infringing software to sell to new customers. JA13;
JA117-118. The public will also continue to have access to the patented inventions
through Brocade’s own products. The injunction thus protects Brocade’s
intellectual property rights and fosters innovation without unduly burdening third
parties. Just as in i4i, “the narrow scope of the injunction[s] and the public’s
general interest in upholding patent rights favor injunctive relief.” 598 F.3d at 863.
A10 offers several reasons why it believes the injunction is contrary to the
public interest, but none has merit. It first contends that Brocade’s patents are “of
dubious validity,” implying that it will prevail in various pending reexamination
proceedings before the Patent and Trademark Office. A10 Br. 38. In A10’s view,
the possibility that the PTO will declare Brocade’s patents invalid weighs against
an injunction. But that argument is foreclosed at this stage. Brocade’s patents
must be presumed valid in the absence of clear and convincing evidence to the
contrary, 35 U.S.C. § 282; Microsoft Corp. v. i4i Ltd. P’ship, 131 S. Ct. 2238,
2242 (2011); and moreover, the District Court held that A10 is barred from
presenting such evidence under the doctrine of assignor estoppel. JA114 n.55.
A10 does not dispute the District Court’s ruling on that point, and it is
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consequently precluded from claiming invalidity or assigning weight to that
argument as part of the public interest analysis.6
A10 next tries to smuggle a merits argument into the public interest analysis,
claiming that its devices did not infringe Brocade’s patents at all. According to
A10, the AX devices were not “configured to” perform the specified functions (as
the patent claims require) because the end user can choose whether to enable the
accused functionality. A10 Br. 38-39. It is the customers, in A10’s view, who
“configure” the devices to perform the various functions outlined in the claims.
The District Court properly rejected that cramped interpretation of the patent
claims. JA5-8; JA69-73. In ordinary speech, a product is “configured to” perform
a function if it is designed to do so—even if additional steps are necessary before
the function can actually be performed. See, e.g., Oxford English Dictionary
(online ed. 2013) (defining “configure” in the computing context to mean “[t]o
choose or design a configuration for; to combine (a program or device) with other
6 In any event, A10 paints a misleading picture of the reexamination proceedings. It is true, as A10 says, that staff members within the PTO have rejected each of the patent claims at least once. But they have also upheld three of the four claims at least once. Given the early stage of the reexamination proceedings and the many levels of review that lie ahead, see 35 U.S.C. § 307(a), it is improper to suggest that any inferences should be drawn from these conflicting results. It certainly was not an abuse of discretion for the District Court to disregard these conflicting results. Cf. SynQor, Inc. v. Artesyn Technologies, Inc., __ F.3d __, 2013 WL 950743, at *10 (Fed. Cir. Mar. 13, 2013) (district court properly excluded evidence of reexamination proceedings that were not yet final).
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elements to perform a certain task or provide a certain capability”). A new hair
dryer, for instance, is “configured to” dry hair even though the end user must
enable that functionality by connecting the device to a power source, choosing the
appropriate mode, and so forth. A10’s narrower interpretation robs the patent
claims of meaning, for all software must to some degree be activated by the end
user.
The phrase “configured to” must therefore be read naturally and in context—
as the District Court recognized—to cover software that is designed to perform the
accused functions. It is irrelevant whether the end users must enable the patented
features before using them; either way, A10 has infringed the patents by
manufacturing and selling protected software. Activating and deactivating certain
features does not change the underlying configuration of the software. See
Fantasy Sports Properties v. Sportsline.com, 287 F.3d 1108, 1118 (Fed. Cir. 2002)
(“although a user must activate the functions programmed into a piece of software
by selecting those options, the user is only activating means that are already
present in the underlying software”).
Finally, A10 claims that the injunction amounts to “holdup” because
Brocade’s patents cover only “minor” features in the AX devices that “do not drive
demand.” A10 Br. 40. But this case between direct competitors is a far cry from a
patent troll’s use of injunctions to gain “undue leverage in negotiations.” A10 Br.
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41 (quoting eBay, 547 U.S. at 396 (Kennedy, J., concurring)). The public interest
is served here by rewarding Brocade’s innovation and deterring A10’s theft. In
any event, nothing is actually being “held up” in this case. The District Court’s
injunction does not target all AX devices; it excludes devices owned by A10’s
current customers and targets only the infringing features of other devices. A10
says it has removed those infringing features and is already shipping redesigned
products. Assuming those representations are true, A10’s customers and potential
customers will not be denied any “highly desirable products.” A10 Br. 41-42. The
injunction merely holds A10 to its representations and legal obligations.
III. THE DISTRICT COURT DID NOT ABUSE ITS DISCRETION BY ENTERING A PERMANENT TRADE SECRET INJUNCTION
A. Substantial Evidence Supports The District Court’s Finding That Brocade Is Entitled To An Injunction To Prevent A10’s Continuing Misappropriation Of Brocade’s Trade Secrets.
Under the California Uniform Trade Secrets Act (CUTSA), “a successful
trade secret plaintiff is entitled to the full panoply of remedies, including injunctive
relief against further misappropriation” of its trade secrets. Cadence Design Sys.,
Inc. v. Avant! Corp., 57 P.3d 647, 653 (Cal. 2002). Specifically, a prevailing
plaintiff is entitled to a permanent injunction against “actual or threatened
misappropriation” of its trade secrets, and, even if the trade secrets “cease[ ] to
exist” at some point, “the injunction may be continued for an additional period of
time in order to eliminate commercial advantage that otherwise would be derived
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from the misappropriation.” Cal. Civ. Code § 3426.2; see Morlife, Inc. v. Perry,
56 Cal. App. 4th 1514, 1528 (1997).
Decisions regarding the propriety and scope of injunctions are “firmly
within the discretion of the district court.” BBA Nonwovens Simpsonville, Inc. v.
Superior Nonwovens, LLC, 303 F.3d 1332, 1346 (Fed. Cir. 2002) (reviewing
injunction granted under identical provision of South Carolina trade secret
law). Here, the District Court properly exercised its discretion and reached the
result compelled by California law. After the jury found that A10 had
misappropriated four Brocade trade secrets, the District Court carefully reviewed
the trial record and the additional evidence submitted by the parties and determined
that those trade secrets “remain confidential.” JA23; JA41. Accordingly, the
District Court entered an injunction barring A10 from using Brocade’s still-
confidential trade secrets until A10 could show it had independently derived or
reverse-engineered those trade secrets for itself. JA21-22. See also Cal. Civ. Code
§ 3426.1 (“misappropriation” includes any unauthorized “use” of trade
secrets). Because substantial evidence supports the District Court’s findings and
the resulting injunction precisely follows California law, there was no abuse of
discretion.
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1. The District Court did not clearly err in finding that Brocade’s trade secrets remain confidential.
The CUTSA authorizes a court to enjoin “actual or threatened
misappropriation” of a trade secret, although a court must terminate or modify the
injunction “when the trade secret has ceased to exist.” Cal. Civ. Code § 3246.2(a).
A10 argued to the District Court that Brocade’s trade secrets “ceased to exist” as
trade secrets because they had been made public. A10 submitted, by its own
account, “voluminous” documentary evidence purportedly demonstrating as much.
A10 Br. 57. The District Court, after reviewing this evidence (which totaled in the
hundreds of pages) and the trial record, rejected A10’s argument that Brocade’s
trade secrets had been made public:
In light of Brocade’s evidence at trial that the trade secrets were confidential and that it employed numerous strategies to retain that confidentiality and the court’s determination here that the evidence before it does not suggest any subsequent publicity of the trade secrets, the court finds that Brocade’s trade secrets remain confidential and have not become generally known.
JA41. The court enjoined A10 from using Brocade’s trade secrets, consistent with
the CUTSA, until A10 can show that it has independently developed or reverse-
engineered them. JA21-22; see also JA47 & n.122 (noting that under CUTSA
information that has been independently developed or reverse-engineered does not
qualify for trade-secret protection). The District Court thus, in effect, entered an
injunction that lasts as long as the trade secrets continue to exist as trade secrets
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under California law. See JA20 n.93 (holding that injunctions terminate when “the
trade secrets no longer retain their confidential status”).
The District Court’s finding that Brocade’s trade secrets are non-public was
supported by substantial evidence. A10 does not point to any error—let alone
clear error—in the District Court’s analysis of the evidence presented at trial and
submitted with the post-trial briefing. Instead, A10 raises two complaints about
the District Court’s process: that the court erred by not granting A10’s request for
an evidentiary hearing, and that the court did not conduct an “obviousness-type
analysis” of the evidence. A10 Br. 55-57. Neither of these arguments has merit.
A10’s criticism of the District Court for not holding a trial-like evidentiary
hearing (A10 Br. 58) is unavailing. A10 never moved for an evidentiary hearing or
informed the District Court that it wanted to present live testimony. In fact, the
only reference A10 made to an evidentiary hearing was a qualified, passing
comment tucked away in its opposition to Brocade’s motion to strike A10’s
documentary evidence. There, A10 stated that there was a “sufficient written
record to enable the Court to conclude that the alleged trade secrets have become
public” but that the District Court should hold an evidentiary hearing if “the Court
were to determine that this is a disputed factual issue that cannot be resolved on the
papers.” JA20299. The District Court denied Brocade’s motion to strike, fully
considered the evidence A10 had submitted, and concluded that it could resolve the
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issues on the papers. Thus, the court was not faced with the circumstance in which
A10 had (passingly) suggested an evidentiary hearing should be held.
Accordingly, A10 has waived the issue. See Maynard v. City of San Jose, 37 F.3d
1396, 1401 (9th Cir. 1994) (appellants waived right to challenge trial court’s
failure to hold evidentiary hearing where they had suggested that motion could be
decided on the papers, made only passing reference to potential hearing, and at oral
argument on motion “never indicated that they wanted a full evidentiary hearing
with an opportunity to cross-examine witnesses.”).7
Furthermore, even if A10 had properly requested a hearing, it has never
explained what testimony it would have presented, what a live hearing would have
accomplished, or how the failure to hold one prejudiced its case. Because A10 has
failed to point to any clear error in the district court’s factfinding, or shown how a
hearing conducted on its own terms would have yielded a different result, there is
no basis for overturning the District Court’s findings that Brocade’s trade secrets
remain confidential. See 28 U.S.C. § 2111 (harmless errors must be disregarded);
United States v. Microsoft Corp., 253 F.3d 34, 102 (D.C. Cir. 2001) (evidentiary
hearing would not be warranted if parties failed to explain to the district court
7 The “invited error” doctrine also appears to apply, since A10 encouraged the District Court to decide the issues on the paper record. See, e.g., Key Pharmaceuticals v. Hercon Laboratories Corp., 161 F.3d 709, 714-716 (Fed. Cir. 1998); In re Oracle Corp. Sec. Litig., 627 F.3d 376, 386 (9th Cir. 2010).
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“ ‘what new proof they would present’ ” at the hearing (citation omitted)). Cf.
Stanley v. Univ. of S. Cal., 13 F.3d 1313, 1326 (9th Cir. 1994) (“In this circuit, the
refusal to hear oral testimony at a preliminary injunction hearing is not an abuse of
discretion if the parties have a full opportunity to submit written testimony and to
argue the matter.”).
A10’s newly minted fallback position that the District Court should have
conducted an additional “obviousness-type analysis” to consider whether
Brocade’s trade secrets would have been obvious to its competitors is just as
lacking. A10 Br. 58. In opposing entry of an injunction, A10 never presented an
“obviousness-type” theory. Instead, A10 relied exclusively on the theory that
Brocade (and its affiliates) had publicly disclosed the trade secrets. JA20436-39.
A10 thus forfeited any argument that the injunction should have been denied
because the trade secrets were obvious.
Wholly apart from forfeiture, this argument fails for a separate reason: A10
does not demonstrate—or even attempt to demonstrate—that if it had presented an
argument based on an “obviousness-type analysis” of the evidence, the District
Court would have reached a different conclusion. And that failure is readily
explainable because any argument to the contrary would have required persuading
the District Court to contradict the jury’s verdict. A finding that any of Brocade’s
trade secrets had been readily ascertainable or “obvious” at any of the times A10
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alleged them to have been so would have conflicted with the jury’s finding that
Brocade’s trade secrets remained trade secrets as of the date they were
misappropriated. See, e.g., JA35 (rejecting testimony that TS 5 was ascertainable
in 2000 because that evidence “already has been rejected by the jury”); JA40
(rejecting testimony that TS 10 was part of industry standard in 1996 “because it
undermines the jury’s determination that at least as of A10’s creation in 2004, TS
[10] was a trade secret”).8
Because A10 has failed to point to any clear error in the district court’s
factfinding, or shown how a hearing conducted on A10’s terms would have yielded
a different result, there is no basis for overturning the district court’s findings that
Brocade’s trade secrets remain confidential.
2. The District Court correctly rejected A10’s head-start argument in finding that the evidence in this case supported entry of a trade secret injunction.
The CUTSA authorizes a court to terminate a misappropriation injunction
when the covered trade secret “has ceased to exist,” but provides that “the
injunction may be continued for an additional period of time in order to eliminate
8 In a footnote, A10 claims that Trade Secret 5 “is painfully obvious” to a person in the ADC industry. A10 Br. 59 n.17. But A10 offers no support for that claim, which happens to expressly contradict the jury’s findings that Trade Secret 5 was a protectable trade secret. See JA35. With respect to Trade Secrets 8, 10, and 11, A10 makes no argument whatsoever, except to claim that “[s]imilar errors exist.” A10 Br. 59 n.17. This vague assertion provides no reason to second-guess the District Court’s finding that Brocade’s trade secrets remain confidential.
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commercial advantage that otherwise would be derived from the
misappropriation.” Cal. Civ. Code § 3426. Thus, a CUTSA injunction properly
extends for the life of the trade secret—i.e., the time until the secret “cease[s] to
exist”—plus any “additional period” necessary to compensate the plaintiff for the
commercial advantage wrongly obtained by the defendant. See Morlife, 56 Cal.
App. 4th at 1528 (explaining that the CUTSA allows for extension of injunction
“even after the trade secret has been lawfully disclosed”); see also ClearOne
Commc’ns, Inc. v. Bowers, 643 F.3d 735, 753 (10th Cir. 2011) (explaining that
Utah statutory provision identical to § 3426.2(a) “expressly provides for the
imposition of injunctive relief during the life of the trade secret at issue”). Because
the District Court correctly found that Brocade’s trade secrets “remain
confidential” (JA41) and accordingly have not “ceased to exist,” the court properly
enjoined A10 from future misappropriation of the trade secrets.
A10’s argument on appeal is that the duration of an injunction is limited to
whatever “commercial advantage” (or “head start”) the plaintiff could have had
absent the misappropriation. A10 Br. 48-56. This argument is simply wrong: the
plain language of the statute makes the period of “commercial advantage” relevant
only to determining how long an injunction extends after a trade secret “cease[s] to
exist.” Cal. Civ. Code § 3426.2(a). Where—as here—the trade secrets continue to
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exist, the commercial-advantage period has no relevance whatsoever. All of A10’s
arguments about head-start periods are simply beside the point.
a. The commercial-advantage period does not “limit” the scope of an injunction on a trade secret that remains confidential.
A10 contends that a CUTSA injunction should last “only for so long as it
would have taken the defendant to independently develop the misappropriated
technology,” and, here, according to A10, that period has “ended.” A10 Br. 51.
A10’s argument ignores that, under the CUTSA, the period of commercial
advantage determines the length of the injunction only when “the trade secret has
ceased to exist.” Cal. Civ. Code § 3426.2(a). And here, the district court correctly
found that Brocades’s trade secrets do exist and remain confidential. See supra 40-
44.
A10 cites several decisions that it says support its view of the statute, A10
Br. 45, but none of them does. For example, in American Paper & Packaging
Products v. Kirgan, 183 Cal. App. 3d 1318, 1326 (1986), the court held that the
plaintiff was not entitled to preliminary injunction because its customer list was not
a protectable trade secret. Similarly, in Web Graphics, Inc. v. Jos. Hunkeler, 682
F.2d 59, 60 (2d Cir. 1982), the plaintiff was not entitled to a preliminary injunction
because it had disclosed the trade secret in a patent application, and the head start
period had expired. (The expiration of the head start period was relevant in Web
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Graphics because even if a trade secret ceases to exist, an injunction may extend
for the duration of the commercial advantage or head start period.) A10’s other
citations are similarly off-base. Ajaxo, Inc. v. e*Trade Group, Inc., 2003 WL
25778061, slip op. 6-7 (Cal. Super. Ct. Aug. 15, 2003) (trade secrets had been
“publicly disclosed” in court hearings and the head-start periods had expired);
Convolve, Inc. v. Compaq Computer Corp., 2011 WL 7144803, at *25-*26
(S.D.N.Y. Oct. 6, 2011) (injunction was sought to protect “former” trade secrets
where head-start periods had expired); Whyte v. Schlage Lock Co., 101 Cal. App.
4th 1443, 1451-52 (2002) (reviewing claim that appeal had become moot).
A10’s reliance on American Paper & Packaging Products is especially
misleading. In that case, the appellate court affirmed the district court’s finding
that the customer list at issue was not a protectable trade secret. See 183 Cal. App.
3d at 1326. The court observed, in dicta (because there was no injunction to
review), that injunctive relief generally “should only last as long as is necessary to
preserve the rights of the parties,” and “only as long as is necessary to eliminate
the commercial advantage that a person would obtain through misappropriation.”
Id. at 1326. “Thus,” the court continued, “an injunction should terminate when
what once might have been a trade secret becomes known to good faith
competitors,” because at that point “it is not a protectable trade secret.” Id. A10
conveniently omits this context, even though it shows exactly why American
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Paper is not applicable to this case: Brocade has four trade secrets that continue to
be secret and are not “known to good faith competitors.”
b. Even if it were relevant, the commercial advantage associated with Brocade’s trade secrets has not expired.
Even under A10’s tortured reading of the statute to limit a CUTSA
injunction to the length of the plaintiff’s hypothetical “head start,” the District
Court’s injunction would have to be upheld here because A10 has not
demonstrated that Brocade’s head-start over A10 has ended. A10 did not submit
direct evidence showing that it had developed Brocade’s trade secrets
independently or reverse-engineered them, and A10 has not shown by
circumstantial evidence that it necessarily must have done so. A10 has therefore
failed to show that Brocade has lost its commercial advantage over A10 or that the
District Court abused its discretion in enjoining A10 until it could prove that it had
independently developed the trade secrets. In other words, the District Court was
well within its discretion to enjoin A10 from using Brocade’s trade secrets until
A10 can show that it has, through its own research and development work,
dissolved Brocade’s commercial advantage.
A10’s argument to the contrary rests on a thin reed: it repeatedly insists that
Brocade and its expert witness “admitted” or “conceded” that Brocade’s period of
commercial advantage has ended. See, e.g., A10 Br. 48, 52, 60. That is not a
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remotely accurate characterization, as the District Court recognized in rejecting
this argument. JA41-43. This Court should reject it as well. According to A10,
Brocade’s damages expert calculated the period of “head start” A10 gained by
misappropriating Brocade’s trade secrets and these head-start periods conclusively
determine the extent of Brocade’s commercial advantage.
That is not the case. Brocade’s expert “calculated the minimum time he
believed it would have taken A10 to develop the trade secrets.” JA41-42
(emphasis added). That estimate was in turn based on the amount of time it had
taken Foundry to develop them in reality. Id. As the District Court correctly
noted, Brocade’s expert “never asserted how much time A10 actually would need
to develop the trade secrets” or “that A10 inevitably would have developed them”
before trial. JA43 (emphasis added). Brocade’s expert evidence showed that A10
saved at a minimum many years of research and development expenses, and that
this amount of saved time could serve as an appropriate measure of A10’s unjust
enrichment for purposes of a compensatory damages award. The evidence does
not include a “concession” that Brocade’s advantage over A10 would have
“ended” prior to trial.
Other than this non-existent Brocade “concession,” A10 cites only to
testimony from its trial witnesses—including two of the individual defendants—
who claimed that A10 had independently developed the technologies in “one of”
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Brocade’s trade secrets and otherwise would have had to include the same features
that Brocade offered in order to stay competitive in the market. A10 Br. 54-56.
A10’s reliance on this testimony is misplaced, for multiple reasons, including that
A10 did not rely on this testimony in the District Court, see JA20431-35, that the
jury necessarily rejected the testimony claiming A10 independently developed
Brocade’s trade secrets, and that general allegations about competition in the
market and what is “key for a successful start-up,” A10 Br. 55, do not prove that
A10 developed the specific trade secrets at issue in this case. A10’s belated
invocation of this testimony cannot salvage its argument.
The District Court reviewed the evidence and found that Brocade’s trade
secrets remain confidential and that A10 has not independently derived those
secrets for itself. That finding was not clearly erroneous. The District Court went
on to emphasize that if A10 does ever independently develop the trade secrets,
such that Brocade’s commercial advantage has ended, A10 may apply for
termination of the injunction and submit evidence to support that showing. A10
has failed to demonstrate that the District Court abused its discretion in enjoining
A10 from misappropriating Brocade’s trade secrets until A10 derives those secrets
for itself, if it ever does. See Morlife, 56 Cal. App. 4th at 1528 (holding that
injunction allowing for termination after disclosure of trade secret conformed to
California law and was not an abuse of discretion).
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B. The Equitable Factors Also Favor Injunctive Relief.
Although the CUTSA does not require a plaintiff to satisfy the traditional
four-factor test for injunctive relief, see Cal. Civ. Code § 3426.2, the District Court
applied that test anyway and concluded that it supported entry of an injunction.9
There is no basis to disturb that conclusion.
1. A10’s ongoing use of Brocade’s trade secrets irreparably injures Brocade.
The District Court found that Brocade is irreparably injured by A10’s
“continued use” of Brocade’s trade secrets and that “[m]oney damages alone
cannot protect against [that loss of trade secret status.]” JA44. Those findings are
not clearly erroneous and should be affirmed.
For starters, it is well-established that the ongoing, unlawful use of a trade
secret—standing alone—constitutes irreparable injury. See Beckman Instruments,
Inc. v. Cincom Sys., Inc., 165 F.3d 914 (9th Cir. 1998) (“Once lost, [a trade secret]
is lost forever. The harm is irreparable.”); Western Directories, Inc. v. Golden
Guide Directories, Inc., 2009 WL 1625945 (N.D. Cal. June 8, 2009) (presuming
“that Plaintiff will suffer irreparable harm if its proprietary information is
misappropriated”). Indeed, the CUTSA authorizes injunctive relief merely on the
9 In evaluating these factors, the District Court cited cases arising at the preliminary injunction stage or in other inapposite contexts. When reviewing permanent injunctions, by contrast, California courts appear not to conduct a separate review of the equities. See, e.g., Morlife, 56 Cal. App. 4th at 1528; Vacco Indus., Inc. v. Van Den Berg, 5 Cal. App. 4th 34, 53 (1992).
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threat of misappropriation. Cal. Civ. Code § 3426.2(a); see also ReadyLink
Healthcare v. Cotton, 126 Cal. App. 4th 1006, 1023-26 (2005) (defendant’s
continuing possession and future use of trade secret threatened irreparable injury);
Central Valley Gen. Hosp. v. Smith, 162 Cal. App. 4th 501, 527 (2008) (“actual
possession [of trade secrets] by someone who misused the information in the
past * * * justif[ies] injunctive relief”); Fid. Brokerage Servs. LLC v. McNamara,
2011 WL 2117546, at *5-*6 (S.D. Cal. May 27, 2011) (injunction warranted
where defendant possessed protected client information, misused that information
in the past, and refused to return it).
Moreover, it is a firmly established principle of trade-secret law that ongoing
use of a trade secret vitiates the property interest in its entirety, because a trade
secret’s value flows directly from the right to exclude others. See DVD Copy
Control Ass’n, Inc. v. Bunner, 75 P.3d 1, 84 (Cal. 2003) (“[P]rohibiting the
disclosure of trade secrets acquired by improper means is the only way to preserve
the property interest created by trade secret law.”); Ruckelhaus v. Monsanto Co.,
467 U.S. 986, 1011 (1984) (“Once the data that constitute a trade secret are
disclosed to others, or others are allowed to use those data, the holder of the trade
secret has lost his property interest in the data.”). That is why the “continuing or
threatened use or disclosure of a trade secret normally justifies an award of
injunctive relief.” Restatement (Third) of Unfair Competition § 44 cmt. b (1995).
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Brocade’s actual loss of its trade secrets to A10, and A10’s ability to continue to
use those trade secrets in its products, was more than sufficient proof of irreparable
injury for the District Court to enter injunctive relief.
It was not all the District Court relied on, however. Brocade also
demonstrated that it would be irreparably injured by A10’s ongoing use of its trade
secrets insofar as they directly advance its business and provide other intangible
benefits that cannot be compensated with money damages. The District Court
found that Brocade’s trade secrets enhance the performance of ServerIron and help
to promote Brocade’s sales. JA44. And Brocade’s trade secrets allow it to
differentiate itself in a competitive market and contribute to its reputation as an
innovator. Id. In addition, sales of ServerIron create additional opportunities for
Brocade to sell attendant products and services and establish lasting relationships
with customers. See, e.g., JA10453; JA10463-64; JA12039-41; JA30009-10.
Based on all of this evidence, the District Court found that A10’s misappropriation
of Brocade’s trade secrets hurts Brocade’s commercial advantage and ability to
differentiate itself.
A10 does not dispute that loss of sales, goodwill, and reputation constitute
irreparable harm, and it offers no evidence countering Brocade’s expert’s trial
testimony proving that Brocade will suffer these unquantifiable injuries as a result
of A10’s misappropriation. The injunction can be upheld on these theories of
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irreparable harm as well. Indeed, courts have often done so. See Celsis In Vitro,
664 F.3d at 930 (“There is no effective way to measure the loss of sales or
potential growth—to ascertain the people who do not knock on the door or to
identify the specific persons who do not reorder because of the [wrongdoer].”);
Agency Solutions.Com, LLC v. TriZetto Group, Inc., 819 F. Supp. 2d 1001, 1031
(E.D. Cal. 2011) (“With regard to competitive advantage and loss of market status
and goodwill, there is no dispute that such harms, where they occur or threaten to
occur, do warrant injunctive relief because such harms are inestimable.”). See
also, e.g., Coca-Cola Co. v. Reed Indus., 864 F.2d 150, at *2 (Fed. Cir. 1988)
(unpublished); Wyndham Resort Development Co. v. Bingham, 2010 WL2720920,
at *6 (E.D. Cal. Jul. 8, 2010); Lillge v. Verity, 2007 WL 2900568 (N.D. Cal. Oct.
2, 2007).
A10 raises three objections to the District Court’s finding of irreparable
harm. All three boil down to the same flawed claim that Brocade’s trade secrets
are no longer secret.
First, as described above, A10 argues that Brocade is not irreparably injured
by A10’s use of its trade secrets because Brocade’s trade secrets have been
publicly disclosed. A10 Br. 57-59. For the reasons explained above, that
argument fails because the district court did not clearly err in concluding that
Brocade’s trade secrets remain confidential. See supra pp. 40-44.
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Second, based on the flawed premise that Brocade’s secrets are now public,
A10 argues that Brocade was “fully compensated” for A10’s prior
misappropriation. A10 Br. 46-48. Indeed, A10 seems to suggest that Brocade is
barred from seeking injunctive relief because Brocade asked for damages. A10
Br. 47. But nothing in the text of CUTSA indicates that its remedies are mutually
exclusive, and California courts have repeatedly confirmed that plaintiffs are
entitled to the “full panoply of remedies” the statute makes available. Cadence, 29
Cal.4th at 226.10 Furthermore, Brocade was awarded money damages through
2011 only, as A10 had not provided its 2012 sales records at the time of trial. And
the California Supreme Court has recognized that damages from ongoing trade
secret misappropriation are not fixed and finite: rather, “[t]he potential damages
encompassed by a continuing misappropriation claim may expand with each illicit
use or disclosure of the trade secret.” Id. Therefore, A10’s position that a single
jury award for past damages somehow adequately compensates Brocade for all
future damages lacks any foundation.
10 In Ajaxo v. e*Trade Group, Inc., cited at A10 Br. 60, a California court of appeals remanded a case for retrial with the instruction that a damages award would moot the need for injunctive relief. 135 Cal. App. 4th 21, 64 n.44 (2005). However, there is a crucial distinction: the trade secrets in that case had been publicly disclosed. Therefore, the plaintiff would have had no basis on remand to seek an injunction against future misappropriation.
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Third, A10 argues that Brocade is not irreparably injured because Brocade
allegedly “conceded” that the commercial advantage associated with its trade
secrets “dissipated long before trial.” A10 Br. 48. As explained above, Brocade
made no such concession, see supra pp. 48-49, and the District Correctly found
that A10 has not independently developed or reverse-engineered Brocade’s trade
secrets. As the District Court explained, even if A10 theoretically could have
developed the trade secrets before trial, A10 would have to show that it actually
did develop those trade secrets in order to show that it was no longer
misappropriating Brocade’s trade secrets and causing Brocade irreparable injury
with each use. JA43. Accordingly, A10 has no basis to claim that the District
Court erred in finding that Brocade’s trade secrets provided the company an
ongoing commercial advantage.
Of course, the fact that Brocade sought unjust enrichment damages did not
in any way cede Brocade’s right to “injunctive relief against further
misappropriation.” Cadence, 29 Cal. 4th at 224. Nor does the jury’s $1 award
foreclose Brocade from asking for an injunction.11 To accept that view would
11 The jury did not give an explanation for its $1 award. However, the District Court instructed the jury not to award duplicative relief (JA13492), Brocade emphasized that the jury should not award double damages in its closing statement (JA13382-83), and the trade secret verdict followed patent and copyright on the verdict form (JA121-127). It is more reasonable to assume that the jury was following the court’s instruction than to assume (as A10 does) that the jury
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unlawfully convert the jury’s award into a compulsory license—a result the
California Supreme Court has expressly forbidden. See id. at 226 (under the
CUTSA, “a trade secret infringer is by no means rewarded for its infringement
with a license to the misappropriated technology”).
2. The other equitable considerations also favor relief.
A10 does not present any other equitable basis for overturning the trade
secret injunction. It does not raise or argue that the balance of the hardships favors
A10, and it does not raise or argue that the public interest does either. It has
therefore waived any right to do so. In any event, however, these factors also favor
Brocade. See Litton Systems, Inc. v. Sundstrand Corp., 750 F.2d 952, 959 (Fed.
Cir. 1984) (“[a]n injunction against use and disclosure of a trade secret that has
been shown to have been misappropriated * * * preserve[s] * * * the proper status
quo under the law”); DVD Copy Control Ass’n, 75 P.3d at 13-14 (explaining that
trade secret injunctions under the CUTSA serve “significant government interests”
in promoting fair competition and commercial ethics).
believed $1 was appropriate compensation for trade secret misappropriation spanning six years.
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C. There Is No Basis To Award A10 A Reasonable Royalty.
A10 intimates that the District Court should have “h[e]ld an evidentiary
hearing on an appropriate royalty.” A10 Br. 19. To the extent A10 presents that
claim as a ground for reversal, it should be rejected. As a general matter, appellate
courts are not in the business of blue-penciling the terms of an injunction, and
certainly not when the injunction entered by the District Court was not an abuse of
discretion. Moreover, a reasonable royalty is only available under California law
when an injunction would be “unreasonable” and when damages and unjust
enrichment are “unprovable.” Cal. Civ. Code § 3426.2(b); see Cacique, Inc. v.
Robert Reiser & Co., Inc., 169 F.3d 619, 624 (9th Cir. 1999). Brocade
demonstrated to the District Court that an injunction was reasonable, and
necessary, to protect its trade secrets. A10 fails to demonstrate that the District
Court abused its discretion in entering an injunction on A10’s use of the trade
secrets it misappropriated rather than forcing Brocade to effectively grant a
compulsory license and accept a reasonable royalty.12
12 The District Court suggested that “a reasonable royalty might be more appropriate than an injunction” because it believed an unqualified permanent injunction against A10 could be overly broad. JA47 n.124. The District Court correctly held, however, that California law precluded a reasonable royalty and instead modified the injunction. In so holding, the District Court mistakenly cited Cal. Civ. Code § 3426.3, which authorizes retrospective royalties (a substitute for past damages), instead of citing § 3426.2, which authorizes ongoing future royalties (a substitute for an injunction); but the court reached the correct result. See Cacique,169 F.3d at 624.
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CONCLUSION
For these reasons, the district court’s entry of the two permanent injunctions
should be affirmed.
Respectfully submitted,
/s/ Neal Kumar Katyal Annette L. Hurst Denise M. Mingrone Bas de Blank ORRICK, HERRINGTON & SUTCLIFFE, LLP 1000 Marsh Rd. Menlo Park, CA 94025 Fabio E. Marino MCDERMOTT, WILL & EMERY 275 Middlefield Rd. Menlo Park, CA 94025 March 26, 2013
Neal Kumar Katyal Jessica L. Ellsworth Judith Coleman David M. Ginn HOGAN LOVELLS US LLP 555 Thirteenth Street, N.W. Washington, D.C. 20004 Tel.: (202) 637-5600 Fax: (202) 637-5910 Counsel for Appellees
Case: 13-1210 Document: 46 Page: 71 Filed: 03/26/2013
CERTIFICATE OF COMPLIANCE
1. This brief complies with the type-volume limitations of Federal Rule
of Appellate Procedure 32(a)(7)(B) because it contains 13,954 words.
2. This brief complies with the typeface requirements of Federal Rule of
Appellate Procedure 32(a)(5) and the typestyle requirements of Federal Rule of
Appellate Procedure 32(a)(6) because it has been prepared in a proportionally
spaced typeface using Microsoft Office Word in Times New Roman 14-point font.
/s/ Neal Kumar Katyal
Case: 13-1210 Document: 46 Page: 72 Filed: 03/26/2013
CERTIFICATE OF SERVICE
I hereby certify that on this 26th day of March 2013, I caused a copy of the
foregoing Brief for Appellees to be served by electronic means via the Court’s
CM/ECF system on all counsel registered to receive electronic notices.
/s/ Neal Kumar Katyal
Case: 13-1210 Document: 46 Page: 73 Filed: 03/26/2013