Alifax Holding Spa v. Alcor Sci. LLC

1

ALIFAX HOLDING SPA, Plaintiff-Appellant SIRE ANALYTICAL SYSTEMS SRL, Plaintiff v. ALCOR SCIENTIFIC LLC, FRANCESCO A. FRAPPA, Defendants-Cross-Appellants

Nos. 2022-1641, 2022-1723

United States Court of Appeals, Federal Circuit

June 11, 2024

This disposition is nonprecedential.

Appeals from the United States District Court for the District of Rhode Island in No. 1:14-cv-00440-WES-LDA, Chief Judge William E. Smith.

Todd Roberts Tucker, Calfee, Halter & Griswold LLP, Cleveland OH, argued for plaintiff-appellant. Also represented by Joshua Friedman; Christopher Baxter, Pierce Atwood LLP Portsmouth, NH; Robert H. Stier, Jr., Stier IP Law LLC, Cape Elizabeth, ME.

Craig M. Scott, Hinckley, Allen & Snyder, LLP, Prov-idence, RI argued for defendants-cross-appellants. Also represented by Christine K. Bush; Laurel M. Rogowski, Boston, MA.

Before Moore, Chief Judge, Lourie and Cunningham, Circuit Judges.

CUNNINGHAM, CIRCUIT JUDGE

This appeal is the culmination of the parties' multiyear litigation at the District Court of Rhode Island concerning automated clinical instruments that measure certain characteristics of human blood samples. Alifax Holding SpA and Sire Analytical Systems SRL (collectively, "Alifax") sued Alcor Scientific LLC ("Alcor") and Mr. Francesco A. Frappa (collectively, the "Cross-Appellants" or "Defendants"),^[1] alleging misappropriation of trade secrets, patent infringement, and copyright infringement. For the reasons discussed below, we affirm-in-part and reverse-in-part the district court's decisions, and remand for further proceedings.

I. BACKGROUND

Alifax makes automated clinical instruments used to determine the erythrocyte sedimentation rate ("ESR") of human blood samples. Alifax Holding Spa v. Alcor Sci. Inc., 404 F.Supp.3d 552, 557 (D.R.I. 2019) ("New Trial Order"). An employee of an Alifax subsidiary, Mr. Francesco A. Frappa, left the company and began working for Alcor. Id. Within a year, Alcor offered a new ESR instrument of its own, the iSED, with analytical capabilities comparable to the Alifax devices. Id.

On October 7, 2014, Alifax^[2] sued Defendants for trade secret misappropriation under the Rhode Island Uniform Trade Secrets Act ("RIUTSA"). Alifax also sued only Alcor for infringement of U.S. Patent Nos. 6,632,679 and 7,005,107. J.A. 136, 140 ¶¶ 20-21, 146 ¶¶ 53-58, 147-48 ¶¶ 59-68; see New Trial Order at 557. On March 20, 2017, Alifax amended its complaint to assert a claim of copyright infringement solely against Alcor. J.A. 2106-07 ¶¶ 77-85. Alcor answered and counterclaimed seeking, among other things, declaratory judgment of patent invalidity. See, e.g., J.A. 2235 ¶¶ 41-42; see New Trial Order at 557-58.

Before trial, the parties moved for summary judgment. Relevant to this appeal, Defendants moved for summary judgment on Alifax's claims for copyright infringement, patent infringement, and trade secret misappropriation, as well as Alcor's patent invalidity counterclaims. See Alifax Holding SPA v. Alcor Sci. Inc., C. A. No. 14-440 WES, 2019 WL 13091790, at *1, *4-11, *13 (D.R.I. Mar. 26, 2019) ("Summary Judgment Order"). On March 26, 2019, the court denied Defendants' motion for summary judgment. Id. at *13.

Shortly before trial, the court and the parties continued to narrow the case. Three days before trial, the court excluded the opinion of Alifax's expert, Mr. Christopher J. Bokhart, on copyright infringement damages. Alifax Holding SPA v. Alcor Sci. Inc., C. A. No. 14-440 WES, 2019 WL 1579503, at *1-2 (D.R.I. Apr. 12, 2019) ("Daubert Decision on Copyright"). As a result, the parties agreed that Alifax's copyright claim was "out of the case." New Trial Order at 558; J.A. 13829.

The court bifurcated the trial into liability and damages phases. J.A. 126; see J.A. 13853-54. Five days into the liability phase of the trial, Alifax decided that it no longer wished to proceed on its patent infringement claims. J.A. 14385. To effectuate removal of patent infringement from the case, the court granted summary judgment for Alcor on that claim, and the parties executed a covenant not to sue, addressing all patents. New Trial Order at 558; see J.A. 14458-59. Accordingly, the only remaining claims for jury deliberations relevant to this appeal were the trade secret misappropriation claims. See New Trial Order at 558.

Alifax presented multiple theories of trade secret misappropriation to the jury. There are two trade secrets relevant to this appeal:^[3] the conversion algorithm trade secret, which comprises "[p]ortions of computer program source code concerning the conversion of photometric measurements, including source code containing four specific conversion constants," J.A. 15193, see J.A. 13849; and the alleged signal acquisition trade secret, which involves "the process by which Alifax's devices gathered ESR-related raw data through signal acquisition." Order on New Trial Scope and Patent Fees at *2; see also Summary Judgment Order at *7.

At the charge conference, the court struck the alleged signal acquisition trade secret from the jury verdict form.

J.A. 14943-48. Specifically, the court decided to exclude "acquisition" from its description of the software and firmware trade secrets, effectively removing the alleged signal acquisition trade secret. Id.; see J.A. 15193-99 (Jury Verdict Form). Alifax objected, arguing that it had identified the alleged signal acquisition trade secret as "[t]he manner in which the software used in Alifax's ESR analyzers initiates an ESR measurement from a blood sample loaded in the ESR analyzer, handles a blood sample to introduce it into the capillary container, instructs the ESR analyzer to obtain photometric data, and handles and converts the photometric data to calculate the ESR of the blood sample." J.A. 14944 (citing J.A. 2000 ¶ 5); see also Oral Arg. at 11:53-12:30, 18:00-19, https://oralarguments.cafc. uscourts.gov/default.aspx?fl=22-1641_07102023.mp3. Ali-fax also contended that it introduced evidence and testimony related to the alleged signal acquisition trade secret at trial. J.A. 14944-45.

The court rejected this argument regarding the alleged signal acquisition trade secret, finding there to be "no . . . record evidence of trade secrets involved in any of the steps that are discussed . . . [regarding] how the apparatus would be programmed to operate, other than with respect to the conversion algorithm ...." J.A. 14947-48. The jury returned a verdict finding Alifax proved that the conversion algorithm was a trade secret and that Defendants misappropriated that trade secret.^[4] J.A. 15193-98.

Before the start of the damages phase of the trial, the court excluded in their entirety Alifax's expert opinions by Mr. Bokhart concerning trade secret misappropriation damages. Alifax Holding SpA v. Alcor Sci. Inc., 387 F.Supp.3d 170, 171-72 (D.R.I. 2019) ("Daubert Decision on Trade Secrets"). However, over Defendants' objection, the district court allowed Alifax to call Mr. Bokhart as a summary fact witness pursuant to Federal Rule of Evidence 1006 to testify as to the iSED-related revenues and costs based on Alcor's financial spreadsheets. J.A. 15309-11; Trial Tr. Vol. 11 at 33-34, Alifax Holding SpA v. Alcor Sci. Inc., C. A. No. 14-440 WES (D.R.I. May 1, 2019), Dkt. 347; see also New Trial Order at 580. The jury awarded $6.5 million in damages to Alifax for Alcor's misappropriation of the conversion algorithm trade secret. J.A. 15490.^[5]

After the trial concluded, the district court granted Defendants a new trial on both liability and damages for the conversion algorithm trade secret. New Trial Order at 577-82.^[6] Regarding liability, the court found that the verdict was against the clear weight of the evidence. Id. at 577. The court reasoned that because there was little evidence that Alifax's algorithm could produce highly accurate results in a non-Alifax device, Defendants could not have used Alifax's algorithm for any purpose. See id. at 577, 579-80. As to damages, the court found that Mr. Bokhart's testimony exceeded the scope permitted for a summary fact witness and unfairly prejudiced Alcor. See id. at 581-82. The district court also denied Alcor's motion as to attorney's and expert fees and costs related to the copyright claim. Alifax Holding SpA v. Alcor Sci. Inc., C. A. No. 14440 WES, 2019 WL 4247737, at *4 (D.R.I. Sept. 5, 2019) ("Order on Copyright Fees").

On July 16, 2021, the court (1) held that no new evidence or witness would be permitted at the new trial, Order on New Trial Scope and Patent Fees at *2; (2) excluded the theory based on an alleged signal acquisition trade secret from the new trial, id. at *3; and (3) denied Alcor's motion for attorney's fees related to the patent infringement claims. Id. at *5. Following additional briefing by the parties, the court also precluded Alifax from seeking compensatory damages at the new trial. Alifax Holding Spa v. Alcor Sci. Inc., C. A. No. WES 14-440, 2021 WL 3911258, at *1 (D.R.I. Sept. 1, 2021) ("Order Precluding Damages"). The parties agreed not to go to trial on nominal damages, and on February 18, 2022, the district court dismissed with prejudice the trade secret claim. J.A. 91, 98 (Order Dismissing Trade Secret Claim). On March 25, 2022, the district court entered final judgment on all remaining claims, including entering judgment in favor of Defendants on patent infringement, trade secret misappropriation, and copyright infringement. J.A. 101-02 (Final Judgment).

Alifax timely appealed. The Cross-Appellants filed a timely cross appeal. We have jurisdiction under 28 U.S.C. § 1295(a)(1).

II. DISCUSSION

On appeal, Alifax argues that the district court erred by (1) excluding the alleged signal acquisition trade secret from jury consideration, Appellant's Br....