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Even before he walked into the San Jose, Calif., courtroom, Matthew Powers had decided that the best way to win his trade secrets case was to de-emphasize the secrets part. It was a novel strategy, and at first glance, a bit of a screwy one, too, given that Powers’ client, Lexar Media Inc., alleged that 10 of its secrets had been misappropriated by its former partner, Toshiba Corp. In its pleadings and press releases, Lexar had been loud and clear about this. Yet in the courtroom, Powers, a partner in the Silicon Valley office of Weil, Gotshal & Manges, wanted to keep the whole secrets thing, well, secret. “We tried not to have the emphasis on whether these were trade secrets,” says Powers. “If you act like it’s not important, and bring in other issues, the jury places less attention on it.” Typically it is the defendant — or a plaintiff with a weak case — who talks like this. Lexar, a Fremont, Calif., company whose memory cards are used in digital cameras, PDAs and cell phones, was neither. In March a jury in San Jose Superior Court found that eight of Lexar’s 10 trade secrets had been misappropriated by Toshiba, and Lexar was awarded $465.4 million. Maybe Powers’ strategy shouldn’t be too surprising. Trade secrets cases can be excruciatingly difficult to win. Not only must the plaintiff prove that there was a secret, but also that it was valuable, that it was misappropriated and that the misappropriation caused damage. From its own pretrial briefs, Toshiba’s strategy was clear: the technology was no secret, and Toshiba was going to hammer away at that point. (Toshiba’s lead counsel, Michael Jacobs of Morrison & Foerster, declined to comment.) Powers decided that his best option was to shift the focus — not to tackle Toshiba head-on about secrecy, but instead to develop a narrative highlighting how important Lexar’s technology was to Toshiba. “Our basic concept at the beginning was to have a story about why Toshiba needed Lexar,” says Powers. Stressing the value that Toshiba placed on Lexar’s technology would, Powers hoped, counter any suggestion that the technology was known outside Lexar — and indirectly make the case that the technology, therefore, was secret. At the same time, a “Toshiba needs us” narrative could establish a fiduciary duty that Toshiba owed Lexar. This was vital, as Lexar was also suing for breach of fiduciary duty. Powers knew he could argue that such a duty stemmed from the seat Toshiba was granted on Lexar’s board of directors in 1997, after it made a $3 million investment in the smaller company (Toshiba has since sold its stake). But Powers also knew that he could make a better case for that duty by showing how “Toshiba promis[ed] Lexar that it would be its partner in building a flash memory business in order to induce Lexar to give Toshiba its key technology,” he says. The plan was simple: one narrative proving two cases. Better yet, this particular narrative leveraged Powers’ trump card — a cache of internal Toshiba documents that, he would contend at trial, showed just how important Toshiba considered Lexar’s technology. Getting a handle on these documents was no easy task. For one thing, the Tokyo-based company’s documents were all in Japanese. For another, there were an awful lot of documents. Though the marriage ultimately failed — Toshiba opted for a new memory-card partner in SanDisk Corp. in 1999, and Lexar brought its suit in 2002 — Toshiba had high hopes for its partnership with Lexar. Toshiba wanted to combine Toshiba’s flash memory chips with Lexar’s controller technology, which enables a memory chip to communicate with its “host” device, be it a computer, camera or phone. Toshiba had prolifically documented details of the partnership. For Lexar, this was a mixed blessing. “There were hundreds of thousands of pages of documentation, all in Japanese, and we had to figure out which to translate,” says Eric Whitaker, executive vice president for corporate strategy and general counsel at Lexar. Weil had to hire translators, get them familiar with the themes of the case so that they’d know what to look for in the documents and then set them loose. “It was a very tedious task,” says Whitaker. And an expensive one, too. Whitaker estimates that “a couple of hundred thousand dollars” were spent just on translation services. But the grief and expense of sifting through the documents was outweighed by the payoff. The documents allowed Powers to focus on his main theme: Toshiba needed Lexar. “You need to pick fights where you control the playing field,” says Powers. “That’s where you kill them. We had documents showing that the technology was important to them.” The flip side to Powers’ strategy was to keep Toshiba’s lawyers from pressing arguments where they might have controlled the playing field. Here his plan was to keep Toshiba’s legal team distracted, exploiting an old rule of thumb about litigators: They’re trained to fight over everything. “You can really play off that,” Powers says. “You want to see if they’ll fight you on every little issue, and encourage them to do so.” The key is to pick issues — even if they’re not vital to the case — where you can make the better case. “They end up losing a lot of fights in front of the jury, which makes the jury less likely to believe them on the two or three issues that really matter,” says Powers. During the seven-week trial, Powers got Toshiba’s lawyers to argue over small details like whether certain people were at a certain meeting. “There were probably 100 little things they were trained to fight about,” he says. “If they had agreed to 95 of those things, it wouldn’t have mattered in the end.” Right from the start of the trial, Powers worked to throw Toshiba off balance. In his opening statement, Toshiba’s lead attorney, Jacobs, stressed how Toshiba had invented the type of memory — called NAND Flash memory — at issue in the case. Instead of arguing this point, Powers, in his own opening statement, quickly conceded it. “This let us take away and turn around one of their main points,” he says. “By acknowledging that they invented NAND Flash, we make it all the more vital that they get [Lexar's] controller to sell it.” Yet while documents and distraction would help, Powers needed to put a human face on his narrative. This meant calling witnesses — specifically, Lexar’s founders. After putting two quick witnesses on the stand to set up a brief history of the company’s relationship with Toshiba, Powers called Lexar’s lead inventor and cofounder, Petro Estakhri. “It was important to have him testify early in the case,” says Powers. “The jury needs to get to the meat fairly quickly if they’re going to get interested.” But calling Estakhri early was risky. “Technologists are generally uncomfortable on the stand,” says Powers. “If it goes badly, it hurts your case right at the beginning.” So Powers and his team worked to get Estakhri to feel at ease on the stand. They sat down with the inventor and got him to remember even the smallest details of meetings and experiments. “It really hurts witnesses when they don’t remember something that the jury thinks they should, even if it is something that’s years old,” says Powers. Some might call Powers a bit obsessive about trial preparation. Though his office was just 15 minutes from the courthouse, Powers opted to commandeer half of the fourth floor of the San Jose Marriott to house himself and some 20 lawyers, paralegals, IT support staffers and presentation graphics specialists for the eight to nine weeks it took to prepare for and run the trial. The Weil staff even had what Powers calls a “Trial Mom” — Bev Harris, an assistant to one of the lawyers on the team — who ordered food for everyone, took charge of logistical support and served as all-around cheerleader. “She kept us together, body and soul,” says Powers, who, at the end of the trial, presented Harris with a mock patent titled “A Method of Keeping a Trial Team Very Happy.” Meanwhile, Toshiba’s team at Morrison & Foerster set up its war room in a less expensive nearby office building and opted to sleep at home. The key to Estakhri’s testimony, says Powers, was to bring it down to a personal, human level. “A lot of lawyers on direct [draw out] a pretty dry recitation of facts, like a dry history book,” says Powers. “You want an emotional rendition, like a good movie. You need to push witnesses to remember little, funny details that don’t mean anything but bring the story to life.” To this end, Powers got Estakhri to recall meeting a top Toshiba executive for the first time, and to describe him as a big, back-slapping salesman. “Everyone on the jury knew someone like him; it really created a picture for them,” says Powers. At other points during Estakhri’s two days on the stand, Powers asked him about his feelings and reactions while developing his technology. “Too many lawyers just establish what happened,” says Powers. “You need to bring it down to an emotional level. The jury saw that Estakhri was a good man. He connected with them.” Toshiba, on the other hand, opted to have many of its witnesses testify via video depositions recorded in Japan, a complicated process as the translators for each side were constantly arguing over the meanings, and proper translations, of words. In complying with international law, the depositions were conducted in conference rooms in the American embassy in Tokyo and a consulate in Osaka. This required Weil to keep six lawyers in Japan for some seven weeks. By stressing the enormous value Toshiba placed on Lexar’s technology, Powers was able to ask the jury for enormous damages — 50 percent of the $2 billion in profits Toshiba had made from NAND Flash — without seeming completely out of line. At the same time, Powers hoped, Toshiba would seem out of line with a comparatively puny damages number of $4 million. “No defendant wants to talk about damages, but it hurts your credibility to say this is worthless after document after document says it is important,” says Powers. “It gives the jury no guidance.” Even as it touts its nearly half-billion-dollar award, Lexar isn’t home free. In a postverdict hearing, scheduled for late June, as we went to press, Judge Jack Komar was to hear Lexar’s motion for an injunction on Toshiba products — including its NAND flash chips and CompactFlash, Secure Digital and xD Picture Card products — that incorporate Lexar’s trade secrets. The injunction, Whitaker says, is essential for what he calls a make-or-break-the-company case: “Otherwise, we’re having to compete in a marketplace where Toshiba could undercut us.” Once the final judgment is entered by Komar, Toshiba is expected to move for a new trial and a judgment notwithstanding the verdict. If those motions fail, an appeal is certain. Meanwhile, Lexar has alleged that Toshiba is infringing 12 of its patents, and the two companies are expected to fight that out in district court in San Francisco sometime next year. For Powers and his team, more litigation will mean more hotel nights — and more TLC from Trial Mom.
CASE: Lexar Media, Inc. v. Toshiba Corporation and Toshiba America Electronic Components, Inc. WIN:Lexar. AT ISSUE:Lexar’s controller technology, which enables a memory chip to communicate with its host device, be it a computer, camera or phone. AT STAKE:Lexar won $465.4 million in damages, but victory depends on a pending injunction request against some Toshiba products. LESSONS LEARNED:Distract your opponent with nonessential matters he can’t win. Always pick battles where you control the playing field.

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