A Reminder: Non-Disclosure Agreements Are Still Important

By Adaku Nwachukwu

Posted March 3, 2021

 

In December 2020, the U.S. Court of Appeals for the Federal Circuit reminded all businesspeople and attorneys alike – non-disclosure agreements (NDAs) are very important.  Yes, NDAs can be very impactful to a company’s relationship with a partner and can even protect a company’s intellectual property (IP) with the same force as an assignment agreement.  Case in point, the case SiOnyx LLC v. Hamamatsu Phontonics K.K., 981 F.3d 1339 (Fed. Cir. 2020).  The SiOnyx case is a patent infringement, breach of contract, and IP ownership case that (not) surprisingly turned on certain IP clauses in the mutually executed NDA.

 

Background

               SiOnyx was a startup established in 2005, by Harvard professor Eric Mazur and his then-student James Carey. SiOnyx was created to further develop and commercialize Mazur’s process for creating “black silicon” with a textured surface and electronic properties differing from traditional silicon.  Mazur and Carey discovered this invention in 1998, and later filed a provisional patent application on this process in 2001 (Patent ‘467).

 

Non-Disclosure Agreement

               After initially meeting in 2006, when SiOnyx gave Hamamtsu (a producer of silicon-based photodetector devices and other items) a brief presentation about its technology, the parties entered into an NDA in 2007. The NDA allowed SiOnyx and Hamamtsu to share confidential information relating to joint development opportunities for certain types of photonic devices. The NDA also included three provisions that were relevant to the Federal Circuit appeal.  First, the NDA required the receiving party to maintain the confidentiality of the confidential information for seven years after the expiration of the agreement, at which time the receiving party may use or disclose the confidential information.  Second, the NDA stated that the receiving party acknowledges that the disclosing party claims ownership of the information and all patent rights “in or arising from” the information. And finally, the agreement stated that the receiving party must return all confidential information within 30 days of the termination of the agreement.  Of these three provisions in the NDA, the most important provision is likely the one addressing IP ownership.

               Under the NDA, SiOnyx provided Hamamtsu with confidential proposed architectures and a manufacturing process for a photodetector device.  The parties worked together to create devices using SiOnyx’s process which produced good results.  Surprisingly, Hamamtsu ended the relationship, stating that it wanted to pursue development of its products without SiOnyx or SiOnyx’s proprietary information.  Shortly thereafter NDA expired in January 2008.

 

Hamamtsu’s IP Protection and Commercialization of the Technology

               Ultimately, Hamamtsu used SiOnyx’s black silicon process and in early February 2009 informed SiOnyx of its intent to introduce a new photodiode at the Photon Fair exhibit.  In late February 2009, Hamamtsu filed a Japanese patent application, and other applications, all relating to the photodetector device.  These other applications, including U.S. applications, claimed priority to the Japanese application.  The following year Hamamtsu sold products created with SiOnyx’s proprietary process.  In 2013, SiOnyx started to sell its own photodetector products using its own proprietary process.  In 2014, SiOnyx became aware of Hamamtsu’s alleged infringement, and pursued an infringement action after failure for the parties to reach a settlement agreement.

 

District Court Case

               SiOnyx sued Hamamtsu in Massachusetts District Court for (1) breach of contract, (2) unjust enrichment, (3) infringement of SiOnyx’s Patent ‘467, and (4) change of ownership of Hamamtsu’s U.S. patents incorporating SiOnyx’s proprietary process. 

               In District Court, a jury found for on its breach of contract and unjust enrichment claims.  SiOnyx also won its infringement claim. The District Court found that the infringement began in December 2011, however, awarding $0 in damages. Finally, the District Court did not change ownership of the Hamamtsu’s U.S. patents but found that Carey was a co-inventor. 

Post Judgement Filings and Decisions
               In post judgement filings, SiOnyx requested sole ownership of Hamamtsu’s U.S. patents and foreign patents related to the proprietary process, injunctions preventing Hamamtsu commercializing the U.S. and foreign patents, and damages and fees.  Hamamtsu’s post judgement filings included defenses of statute of limitations bars, non-infringement, and no right to damages due to the end of the NDA’s confidentiality period.

               The District Court granted all SiOnyx’s motions, except for SiOnyx’s motions for ownership of the foreign patents and certain fees.  The District Court denied all Hamamtsu’s motions.

               Hamamtsu appealed and SiOnyx cross-appealed.

 

Federal Circuit Decision

               On appeal, Hamamtsu lost on all points and SiOnyx lost on its request for certain damages.  The Federal Circuit, however, did reverse the District Court’s decision not to grant SiOnyx ownership of the foreign patents. 

               The Federal Circuit’s decision to grant SiOnyx ownership of the foreign patents hinged on the language of the NDA stating that the receiving party acknowledges that the disclosing party claims ownership of the information and all patent rights “in or arising from” the information.  The District Court also used this same rationale in its decision to grant SiOnyx ownership of the U.S. patents. The Court declined to grant ownership of the foreign patents because it believed it lacked authority to do so. Specifically, the District Court believed it lacked authority to require a foreign patent office to make the change in ownership.  However, the Federal Circuit determined that the courts do not need any authority over a patent office to make such changes in ownership because the courts have authority over the party in a case.  Thus, a court can require a party to make the ownership changes.

 

Discussion

               This case reminds legal practitioners and companies of the importance of the terms of agreements.  In particular, the terms of a confidentiality or non-disclosure agreement can have just as much impact on parties’ relationship as other types of agreements, like collaborative research agreements or license agreements.

               The terms and language of the agreement are paramount.  In comparison, the title or name of the agreement can even be trivial and unimportant.

                In this case, the NDA included confidentiality and non-disclosure provisions, but it also contained IP ownership, which protected SiOnyx’s intellectual property in the absence of a formal license or collaborative research agreement. 

 

               This case was a nice reminder that no agreement is unimportant and NDAs can be very powerful and important.