212 F.3d 1272 (Fed. Cir. 2000), 99-1012-1013, Advanced Display Systems v Kent State Univ.

Docket Nº:99-1012-1013
Citation:212 F.3d 1272
Party Name:Advanced Display Systems v Kent State Univ.
Case Date:May 18, 2000
Court:United States Courts of Appeals, Court of Appeals for the Federal Circuit
 
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212 F.3d 1272 (Fed. Cir. 2000)

ADVANCED DISPLAY SYSTEMS, INC., Plaintiff-Appellee, and BAO GANG WU, Third Party Defendant-Appellee,

v.

KENT STATE UNIVERSITY and KENT RESEARCH CORPORATION, Defendants/Third Party Plaintiffs-Appellants, and KENT DISPLAY SYSTEMS, INC., Defendant/Third Party Plaintiff-Appellant.

99-1012,-1013

United States Court of Appeals, Federal Circuit

May 18, 2000

Appealed from: United States District Court for the Northern District of Texas Judge Jeffrey A. Kaplan

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Kevin C. Nash, McKool Smith, P.C., of Dallas, Texas, argued for plaintiff-appellee and third party defendant-appellee. With him on the brief was C. Michael Clark, Attorney at Law, of Corinth Texas.

Richard J. Hoskins, Schiff Hardin & Waite, of Chicago, Illinois, argued for defendants/third party plaintiffs-appellants. With him on the brief were Patricia J. Thompson and Julie L. Brown. Of counsel on the brief was Ray L. Weber, Renner, Kenner, Grieve, Bobak, Taylor & Weber, of Akron, Ohio. Of counsel were V. James Adduci, II, and Michael L. Doane, Adduci, Mastriani & Schaumberg, L.L.P, of Washington, DC.

Before PLAGER, SCHALL, and GAJARSA, Circuit Judges.

GAJARSA, Circuit Judge.

DECISION

This is an appeal from the judgment of the United States District Court for the Northern District of Texas, entered on a jury verdict, in a consolidated declaratory judgment and patent infringement action relating to U.S. Patent No. 5,453,863 (the "West patent"). Advanced Display Systems, Inc. ("ADS") filed a complaint in the Northern District of Texas seeking a declaratory judgment of invalidity of the West patent. Kent State University ("KSU"), an assignee of the West patent, and licensees Kent Research Corporation ("KRC") and Kent Display Systems, Inc. ("KDS") (collectively "Kent") then filed an infringement action, and the two cases were consolidated with Kent as the nominal defendant and ADS as the nominal plaintiff. The parties agreed to have a magistrate judge preside over the jury trial. Following the two-week trial, the jury found that the West patent was invalid for anticipation and obviousness and not infringed by ADS. Kent then moved for a new trial on all the issues in light of newly discovered evidence. Kent also moved for a new trial on anticipation, alleging an erroneous jury instruction. In addition, Kent filed a motion for sanctions against ADS's counsel for withholding evidence during discovery. The magistrate judge denied all of these motions. On appeal, we hold that prejudicial legal error tainted the jury instruction, we vacate the judgment, and remand for a new trial on anticipation. We also remand for a new trial on obviousness and infringement in light of the newly discovered evidence. Finally, we reverse the magistrate judge's ruling on the motion for sanctions.

BACKGROUND

Since 1965, scientists at KSU's Liquid Crystal Institute ("LCI") have been researching the various properties and applications of liquid crystal materials. An important area of research focused on liquid crystal displays ("LCDs"). A typical LCD consists of a sandwich of liquid crystal material between two glass substrates. An electrical driver1 connects to the sandwich in order to stimulate or address the liquid crystal material, thereby creating readable numerical or alphabetical characters. Manufacturers of electro-optic products,

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such as digital watches and notebook computers screens, use LCDs to display images and information.

Traditionally, LCDs were constructed by combining varying concentrations of liquid crystal materials and polymers. For example, one method for creating LCDs involved evaporating water from an aqueous emulsion of liquid crystal material in a solution of water-soluble polymer. Another method involved phase separation of liquid crystal from a homogenous solution with a synthetic resin to generate a liquid crystal phase blended with a polymer phase. Those methods, however, were expensive and entailed complex manufacturing processes. In addition, the presence of polymers created a haze effect that obstructed visibility of the displayed information when the LCDs were viewed from oblique angles.

In early 1992, Dr. John West ("West"), director of LCI, began experimenting with techniques for developing polymer-free LCDs. West eventually developed a new, polymer-free LCD using cholestric visible materials.2 West determined that applying an electric field pulse of sufficient duration and voltage to cholestric visible material creates a contrast between the material's light reflecting and light scattering textures, thereby enabling a stable image display. West further found that a stable image could be sustained through a single electric field pulse rather than continuous application of an electric field. Thus, through the unique use of cholestric visible materials, West achieved the advantages of prior LCDs without the drawbacks attendant to the use of polymers.

On May 4, 1993, West and his colleague, Dr. Deng-Ke Yang, filed a patent application covering their polymer-free device and a method for stimulating it. On September 26, 1995, the application matured into the West patent. West then assigned the patent to KSU, which through its licensing arm KRC, subsequently licensed the patent to KDS.

In February 1992, Dr. Bao Gang Wu ("Wu"), a former KSU student and colleague of West, formed ADS. In June 1993, Jiamini Gao ("Gao"), ADS's vice-president of research and development, secured a written formula for Kent's cholestric LCD. Even with knowledge of that formula, however, ADS failed to develop a functional LCD device because it could not construct an effective electrical driver.

In early 1994, Dr. Zvi Yaniv ("Yaniv"), then president of KDS and a former classmate of Wu, visited ADS and demonstrated a prototype of Kent's cholestric LCD and its electrical driver. Following the demonstration, Yaniv went to lunch with Wu, leaving the prototype at ADS's offices. Seizing the opportunity, Gao clandestinely removed the prototype from its box and brought it into an ADS laboratory. Gao then instructed a group of ADS engineers, including Victor Zhou ("Zhou"), to disassemble the prototype, photograph its various components, and re-assemble it in such a manner as to avoid any indication of tampering. Throughout this process, Gao urged his employees to work quickly to avoid detection because he knew the implication of the theft.

Prior to Yaniv's visit, ADS failed to develop an operational, polymer-free LCD through its independent efforts. Equipped with the photographs of Kent's prototype, however, ADS replicated Kent's cholestric LCD and electrical driver within a month. On April 11, 1994, ADS also filed a patent application for a polymer-free LCD based on the equivalent subject matter that had been photographed and copied during the surreptitious disassembly of Kent's prototype. The patent listed Wu, Gao, Zhou, and Yao-Dong Ma as inventors.

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While ADS's application was pending, the West patent issued, and the Patent and Trademark Office Examiner rejected ADS's claims directed exclusively to polymer-free LCDs as anticipated by the West patent. ADS consequently amended and limited its claims to cover the application of surface treatment in polymer-free LCDs. The ADS application eventually matured into U.S. Patent No. 5,625,477 on April 29, 1997.

In early 1996, Kent learned that ADS was promoting a polymer-free LCD and notified ADS that it intended to enforce the West patent. While Kent and ADS were discussing licensing arrangements, ADS filed a complaint in the Northern District of Texas seeking a declaratory judgment of invalidity of the West patent. After settlement negotiations failed, Kent sued ADS for infringement of the West patent, and the cases were consolidated in the Northern District of Texas.

Concurrent with discovery in the present case, ADS filed suit in Texas state court against USA Display, a company with several former ADS employees, alleging trade secret misappropriation. ADS's attorneys in the USA Display suit and in the present case were from the same law firm. During discovery in the USA Display suit, Zhou's deposition was taken. The pertinent parts of the deposition are set forth below.

Q: Can you describe for me or explain to me what Exhibit 3 is?

A: This is a picture taken by an employee in ADS. I cannot remember who took it, but I know Dr. Zvi Yaniv [and Kent] also develop a similar display, they call [theirs] bistable display, but in ADS they call multistable display. But ADS did not know how to design the driver for this device. So one day Dr. Zvi Yaniv visited ADS with a sample, and [Kent] have [a] completed driver . . . . And Dr. Zvi Yaniv gave to Jianmi Gao, who is the vice president of ADS and boss of R & D group, so he opened Dr. Zvi Yaniv['s] . . . sample, and took this picture, while at that time Dr. Zvi Yaniv was not there. So [Yaniv] did not know.

. . .

Q: What is this picture of?

A: This picture is the picture for the sample brought by Zvi Yaniv.

. . .

Q: And [Yaniv] gave [the sample to ADS]?

A: [H]e not gave a sample, he just waited at ADS with a sample and -

Q: [T]hen he left?

A: No, he did not [leave], he showed the sample. But during [t]his time period he left and [Gao] opened the box and took the picture.

. . .

Q: You were there?

A: Yeah, I was there.

Q: Did you open up the driver?

A: Yes. I was an employee there. I did whatever my boss told me to do.

. . .

Q: Where was Mr. Zvi Yaniv [at that time]?]

A: Well, we are taking picture and I don't know who he was talking to, but he was somewhere within the building or maybe left for lunch. . . . I just know that [Gao] want us to take the picture, and we took it.

. . .

Q: Prior to the meeting in which the Kent State product was taken apart and photographed at...

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