Fraud and Misconduct During Patent, Trademark and Copyright Prosecution
As introductory material one needs to look at the source for the concept of misconduct or fraud in the prosecution of a
patent. Kingsland v. Dorsey 338 U.S. 318, 70 S.Ct. 123, 94 L.Ed. 123 (1949) The cases cited herein discuss the existence
and origins of the duty of disclosure.
There are different degrees of misconduct, ranging from simple omissions, through affirmative misstatements to intentional
fraud which, in its most extreme manifestation, provides grounds for the putative infringer to recover under an antitrust
cause of action as in Walker Process Equip., Inc. v. Food Machinery & Chemical Corp. 382 .S. 172, 86 S.Ct. 347, 15
L.Ed.2d 247 (1965)
A basic question dealing with misconduct involving patent prosecution in the Patent and Trademark Office deals with the
type of conduct constitutes "misconduct". While the tests may be more definite than the "I know it when I see it" test for
obscenity, Jacobellis v. Ohio 378 U.S. 184 they are not much more definite, particularly when looking to the various tests
of materiality. American Hoist & Derrick Co. v. Sowa & Sons, Inc. 725 F.2d 1350, 220 USPQ763 (Fed. Cir., 1984)
andJ.P. Stevens & Co. Inc. v. Lex Tex, Ltd., Inc. 747 F.2d 1553, 223 USPQ 1089 (Fed. Cir., 1984), Court of Appeals for
the Federal Circuit cases, discuss some of these inquiries and the results of misconduct as viewed by the Federal Circuit.
There is clearly a duty of candor, expressed by both the Courts and the Rules, but the patent attorney prosecuting the patent
has some latitude to exercise professional judgment, as discussed in Tokyo Shibaura Elec. Co. v. Zenith Radio Corp. 404
F.Supp. 547, 188 USPQ 55 (D. Del., 1975)
A. The Duty of Disclosure in Patents
1. Duty and Consequences: Kingsland v. Dorsey 338 U.S. 318, 70 S.Ct. 123, 94 L.Ed. 123 (1949)
2. Nondisclosure of Prior Art: Beckman Instruments, Inc. v. Chemtronics, Inc. 439 F.2d 1369, 165 U.S.P.Q. 344 (5th Cir., 1970)
3. Affirmative Misrepresentations: Grefco, Inc. v. Kewanee Ind. Inc . 208 USPQ 232 (D. Del., 1980)
4. Exercise of Professional Judgment: Tokyo Shibaura Elec. Co. v. Zenith Radio Corp. 404 F.Supp. 547, 188 USPQ 55 (D. Del., 1975)
5. Interrelation of Materiality and Intent: J.P. Stevens & Co. Inc. v. Lex Tex, Ltd., Inc. 747 F.2d 1553, 223 USPQ 1089 (Fed. Cir., 1984)
6. Burden of Proof; Species of Fraud: American Hoist & Derrick Co. v. Sowa & Sons, Inc. 725 F.2d 1350, 220 USPQ763 (Fed. Cir., 1984)
7. Burden of Proof; Species of Fraud: Nobelpharma AB v. Implant Innovations, Inc., 141 F.3d 1059, 46 USPQ2d 1097, 1998-1 Trade Cas. ¶72,100 (Fed Cir 1998)
B. Trademark Fraud: Torres v. Torresela S. A. 808 F.2d 46, 1 USPQ 2d 1483 (Fed. Cir., 1986)
C. Copyright Fraud
1. Derivative Works Disclosure: Russ Berrie v. Jerry Elsner 482 F. Supp. 980, 205 USPQ 320 (SDNY 1980)
2. Misconduct in Litigation: qad inc. v. ALN Assoc. >770 F. Supp. 1261, 19 USPQ2d 1907 (N.D. Ill., 1991)
Kingsland, Commissioner of Patents v. Dorsey
338 U.S. 318, 70 S. Ct. 123, 94 L. Ed. 123, 83 USPQ 330 (1949)
The District Court affirmed an order of the Commissioner of Patents barring an attorney from practice before the Patent
Office. 69 F.Supp. 788. The Court of Appeals reversed. 84 U. S. App. D. C. 264, 173 F.2d 405. This Court granted
certiorari. 337 U.S. 914. Judgment of the Court of Appeals reversed and that of the District Court affirmed.
Acting under the provisions of § 487 of the Revised Statutes (35 U.S.C. § 11), the Commissioner of Patents found after
hearings that petitioner, an attorney, had been guilty of gross misconduct, and entered an order barring him from practice
before the United States Patent Office. Pursuant to authority granted by the same provisions, the District Court reviewed the
Commissioner's order. Concluding that the hearings had been fairly conducted after due notice of charges and that there was
substantial evidence to support the findings and action of the Commissioner, the District Court affirmed the order. 69
F.Supp. 788. The Court of Appeals reversed, 84 U. S. App. D. C. 264, 173 F.2d 405. A majority of that court thought the
notice of charges inadequate and the proceedings before the Commission unfair. It also held that the District Court had too
narrowly restricted its scope of review in holding that substantial evidence was sufficient to support the findings.
It apparently drew a distinction between the phrases "substantial evidence" and "substantial probative evidence." Measuring the findings by the latter phrase, it held that the Commissioner's findings were not supported by "substantial probative evidence." Judge Edgerton, dissenting, thought the hearings had been fairly conducted and "the result just." He agreed with the District Court that "substantial evidence" would have been sufficient but went on to say that he thought the "proof conclusive."
The statute under which the Commissioner acted represents congressional policy in an important field. It relates to the character and conduct of "persons, agents, or attorneys" who participate in proceedings to obtain patents. We agree with the following statement made by the Patent Office Committee on Enrollment and Disbarment that considered this case: "By reason of the nature of an application for patent, the relationship of attorneys to the Patent Office requires the highest degree of candor and good faith. In its relation to applicants, the Office . . . must rely upon their integrity and deal with them in a spirit of trust and confidence . . . ." It was the Commissioner, not the courts, that Congress made primarily responsible for protecting the public from the evil consequences that might result if practitioners should betray their high trust. Having serious doubts as to whether the Court of Appeals acted properly here in nullifying the Commissioner's order, we granted certiorari.
After an examination of the record we are satisfied that the findings were amply supported whether the measure be "substantial evidence" or "substantial probative evidence." The charge of unfairness in the hearings is, we think, wholly without support.
Since the narration of evidence and discussion of the proceedings sufficiently appear in the District Court's opinion, reiteration here can serve no good purpose either for the parties or for the law.
The judgment of the Court of Appeals is reversed and that of the District Court affirmed.
It is so ordered.
Mr. Justice Jackson, whom Mr. Justice Frankfurter joins, dissenting.
I agree that the privilege of practicing before the Patent Office is one that may and should be withdrawn for professional misconduct. In defense of his privilege it also is true that the lawyer may not demand that conclusiveness of proof or invoke all of the protections assured to an accused by the criminal process. But while society may expect that his judges will show him no favor because he has lived respectably for eighty years and devoted fifty-nine of them to practice of his profession without blemish, an accused lawyer may expect that he will not be condemned out of a capricious self-righteousness or denied the essentials of a fair hearing.
The court below thought Dorsey had not been fairly judged and indignantly reversed his disbarment. Dorsey v. Kingsland, 84 U. S. App. D. C. 264, 173 F.2d 405. All questions of fact seem to have been resolved against Dorsey by his departmental triers, and I shall not here review all of those issues, even if on some of them Dorsey would seem entitled to prevail. Accepting the findings against him at their full face value, I think the disbarment order was properly set aside.
Back in 1926 the Hartford-Empire Co. conceived and executed a scheme to prepare and publish, over the signature of an apparently disinterested labor leader, an article to be published and then used in support of the company's pending patent application. Such a dissertation, entitled, "Introduction of Automatic Glass Working Machinery; How Received by Organized Labor," was prepared. It purported to be authored by one Clarke, president of a glassworkers' union. It was published in a trade journal and then presented to the Patent Office as recognition by a "reluctant witness" of the success of the device under consideration. Several years later, involved in litigation testing the validity of its patent, Hartford-Empire took steps to suppress evidence of the real authorship of the Clarke essay. It made a gift of $ 8,000 to Clarke, who had told investigators employed by Hartford-Empire's adversary that he had written the article and would so testify if called upon as a witness. Ultimately, this Court reviewed the actions of Hartford-Empire and held that the sum total of acts attributable to it constituted a fraud on the Patent Office and the federal courts. Hazel-Atlas Glass Co. v. Hartford-Empire Co., 322 U.S. 238, reversing 137 F.2d 764. See also United States v. Hartford-Empire Co., 46 F.Supp. 541.
Dorsey was one of counsel for Hartford-Empire in the 1926 patent application and, shortly following our decision in Hazel-Atlas, supra, proceedings to suspend or exclude him from further practice before the Patent Office were commenced under 35 U. S. C. § 11. Identical but separate proceedings were instituted against three other members of the patent bar involved in the transactions. All were disbarred. Only the Dorsey case is here.
Dorsey was charged with gross misconduct in that, as particularized in the notice which instituted the proceeding, he ". . . participated in the preparation of [the Clarke] article and/or the presentation thereof to the United States Patent Office during the prosecution of said patent application knowing that said article was not written by said William P. Clarke, and with the purpose of deceiving the Patent Office as to the authorship of said article and influencing the action of the Patent Office on said application . . . ."
A view of the facts least favorable to Dorsey indicates that he inspected and criticized a few details of an early draft of the Clarke article and that later, with knowledge that it had been prepared by a Hartford-Empire employee, he submitted it to thePatent Office as being what on its face it purported to be. This is the long and the short of the case against Dorsey. The case against Hartford-Empire, however, included much in which Dorsey is not shown to have had even a consenting part. In two respects only are his actions urged to be wrongdoing: first, in that he deceived the Patent Office as to the real author, and, second (not charged in the notice but advanced here), that Dorsey represented it as the work of a "reluctant witness."
While it is not decisive of the narrow issue of deception pressed against Dorsey, it should be noted as showing how narrow that issue really is, that it includes no claim that any statement in the Clarke article is false or misleading in any respect whatsoever. It stated facts truthfully, facts which a patent lawyer was entitled to bring to the attention of the Patent Office in any manner permitted by its practice. One might expect that the Patent Office would have required facts on which it issued a patent to be proved by affidavits whose truthfulness is encouraged, if not assured, by sanctions against perjury; but it was content to accept unsworn publications for its purposes.
The worst that can be said of Dorsey is that he took advantage of this loose practice to use a trade journal article as evidence, without disclosing that it was ghost-written for the ostensible author.
Let us suppose the Patent Office had exacted more lawyerly standards of proof and had required such information to be laid before it in affidavit form. Clarke, let us say, was prevailed upon to make a deposition. Would it be deceit if the lawyer drafted every word of the affidavit, though it purported to be Clarke's testimony? I suppose that the practice is almost universal that the lawyer ascertains to what facts the witness can testify and puts them in presentable form and suitable words, and that the witness adopts the document as his testimony, with any correction necessary to convey his story. Nothing on the face of the usual affidavit discloses the fact that the composition is that of the attorney; on the contrary, it generally recites that it is the witness who "deposes and says . . . ." Is a different standard to be applied to a trade journal article intended and accepted to serve the same end?
I should suppose that, so far as the law is concerned, one may as effectively father statements by adoption as by conception and that sincerely subscribing to what another has written for him does not constitute legal deceit or grounds for disbarment, impeachment or other penalty. And in this case, not only is there no claim that the Clarke article contained one false statement, but there is no denial that, whoever was the scribe, Clarke believed and knowingly adopted as his own every word of it.
I should not like to be second to anyone on this Court in condemning the custom of putting up decoy authors to impress the guileless, a custom which as the court below cruelly pointed out flourishes even in official circles in Washington. Nor do I contend that Dorsey's special adaptation of the prevailing custom comports with the highest candor. Ghost-writing has debased the intellectual currency in circulation here and is a type of counterfeiting which invites no defense. Perhaps this Court renders a public service in treating phantom authors and ghost-writers as legal frauds and disguised authorship as a deception. But has any man before Dorsey ever been disciplined or even reprimanded for it? And will any be hereafter?
It is added, though as something of an afterthought, that Dorsey in his brief to the Patent Office characterized Clarke as a "reluctant witness." I had supposed that such adjectives were in the nature of argument or, at most, of conclusion rather than representation or warranty. The arsenal of every advocate holds two bundles of adjectives for witnesses -- such ones as "reluctant," "unbiased," "disinterested," and "honest" are reserved for his own; others, such as "partisan," "eager," "interested," "hostile," and even "perjured," for those of his adversary. I have the greatest difficulty believing that a mischoice among these adjectives has deceived anyone fit to decide facts, or that in any case other than this it would subject the advocate to disbarment. But if wrong in this standard, I should think the use of "reluctant" as applied to Clarke was justified. I should not expect a union president to be other than reluctant to point out the advantages of automatic machinery which tends to throw his membership out of employment. At least I hope we have not come to the time when to urge this inference is even a makeweight in disbarment proceedings.
If, however, a lawyer is to be called upon to be the first example of condemnation for an offense so tenuous, vague and novel, the least courts should require is that the case against him be clearly proved. I shall give but two of several reasons why I think that standard was not met in this case.
First, the Patent Office committee, convened to hear the charges against Dorsey, approached its duty upon the premise that this Court's Hazel-Atlas decision established not only Hartford-Empire's guilt but also Dorsey's, unless he should clear his name. The records from that case and from United States v. Hartford-Empire Co., supra, not only were introduced against Dorsey, who was neither a party nor of counsel in either, but were the sole evidence to support the direct case against him. The committee's recommendation was apparently based upon its conclusion that he failed in the imposed task of proving his innocence. I think this was error of a serious kind.
It should be remembered that our conclusion in that case was reached upon the total effect of many events participated in by many persons whose acts were attributable to Hartford-Empire as their principal. A considerable part was not attributable to Dorsey. The most important and prejudicial of these circumstances which incriminate Hartford-Empire, but not Dorsey, is involved in another error, which I think deprived the accused of a fair trial.
I think that Dorsey suffered prejudice again from receipt of evidence concerning Hartford-Empire's later payment to Clarke and the reliance upon that fact to find Dorsey guilty. This payment was not made as an inducement to sign the article and was made long after Dorsey's relationship to the case had ceased. The Government frankly concedes that there is no evidence it was made with the approval or even knowledge of Dorsey. The District Court found, and the Court of Appeals affirmed its finding, that "There is nothing in the evidence that connects Dorsey with the payment of any money to Clarke." We are bound by these concurrent findings.
Nevertheless, evidence of this payment was received against Dorsey and was thrown in the scales against him in the decision. Referring to the payment of money to Clarke, the Patent Office committee report on which Dorsey was disbarred says:
"Nearly six years elapsed after the article was filed in the Patent Office before other events, relevant to the conduct of these respondents with respect to it, occurred. These subsequent events cast their light backwardly on the activities of the parties during the time of preparation and filing of the Clarke article, giving added illumination with regard to the purposes, understandings, and intentions of respondents at that time." (Italics supplied.)
Thus it is clear that Hartford-Empire's later corruption in trying to suppress evidence, which we properly considered as a factor in deciding its case, was the decisive factor in finding Dorsey guilty, though he admittedly had no part in it. Without this misapplication of evidence, nothing in the record explains or excuses the harsh judgment of disbarment. Even though courts lean backward to avoid suspicion of partiality to men of our own profession, they should not fear to protect a lawyer against loss of his right to practice on such a record as this.
v.
Chemtronics, Inc.
439 F.2d 1369, 165 U.S.P.Q. 344
(5th Cir., 1970)
This patent appeal concerns two inventions used in electrochemical analysis. Appellant Beckman sued appellee Chemtronics in the court below, requesting an injunction against continued infringement of its patent. Chemtronics replied by denying infringement, challenging the validity of Beckman's patent, raising issues as to ownership of the patent, charging patent misuse, accusing Beckman of fraud on the Patent Office, and counterclaiming for treble damages under both sections of the Sherman Act. Confronted with this maze of issues, the district court held the patent valid but un-infringed. Consequently, it denied all relief requested by the parties.
Before considering the issues, we observe that the Supreme Court has indicated that this disposition of patent cases, even though it is usually the simplest way to deal with complex litigation, should be reviewed with care. In Sinclair & Carroll Co., Inc. v. Interchemical Corp., 1945, 325 U.S. 327, 65S.Ct. 1143, 89 L.Ed. 1644, the Court observed that:
"[there] has been a tendency among the lower federal courts in infringement suits to dispose of them without going into the question of validity of the patent. * * * It has come to be recognized, however, that of the two questions, validity has the greater public importance."
The Court in Sinclair went on to reverse a circuit court's judgment of noninfringement and to hold the patent invalid. During the current term, the Court took similar action in Anderson's-Black Rock, Inc. v. Pavement Salvage Co., 1969, 396 U.S. 57, 90 S.Ct. 305, 24 L.Ed.2d 258, reversing an order of the Fourth Circuit holding a patent valid in an infringement suit. In the course of its opinion, the Court reemphasized the public importance of the validity issue. The reason for the public interest in patent validity is clear: A patent confers a monopoly on its holder, and the law does not allow the granting of these valuable franchises to private individuals, with consequent public detriment, unless there is a concomitant public benefit.
Against this background, we affirm the denial of relief against appellee, but on different grounds from those advanced by the district court. We disagree with the court's holding that the patent is valid. Because of this holding, we are not required to examine the court's finding of noninfringement. We are, however, required under our view of the case to consider appellees' anti-trust counterclaim, and we find that we must remand this part of the case to the district court for further proceedings.
In a few cases appellate courts have avoided patent validity questions even though validity seemed doubtful by finding noninfringement and holding that this finding disposed of all issues. See Autogiro co. of America v. United States, 1967, 384 F2d 391, 181 Ct.Cl. 55; Peters & Russell, Inc. v. Dorfman, (7th Cir. 1951) 188 F.2d 711; Universal Oil Prod. Co. v. Globe Oil & Ref'g Co., (7th Cir. 1943) 137 F2d 3. This approach does not seem appropriate in this case. In the first place, the patent sued upon is broad and general, and we have doubts that the trial court's conclusionary finding of noninfringement would furnish an easy path for avoidance of validity. More importantly, however, the emphasis the Supreme Court has put upon the validity issue convinces us that the Court does not favor avoidance. Accordingly, we find that when a challenge is made to the validity of a patent in an infringement suit, that issue should ordinarily be taken up first and infringement considered only if validity is decided favorably to the patentee.
I. Background: The Inventions at Suit
Both inventions at issue are designed primarily to determine the concentration of oxygen in liquids or gases. Fast and accurate determination of this concentration can be done by electrical analysis. The basic principles of the type of electroanalysis used here have been known for a long time, but the application of these principles to practical problems is often extraordinarily difficult. The electrodes of the measuring device must come into contact with the sample that is being analyzed, and the most serious problems occur at this contact point when either (1) the substance used to make the electrodes reacts with, and pollutes, the sample, or (2) the sample fouls the electrodes by plating them. It is the solution of this problem that characterizes the inventions at suit.
The devices at issue here are both improvements on a principle of electrochemistry known as polarography. Polarography was invented in 1923 by a Czech scientist named Heyrovsky, who used what is known as a "dropping mercury electrode" for his negative electrical contact, the one that came into contact with the substance to be measured. Above the electrode was a reservoir of mercury, leading down into a dropper which had contact with the sample; a drop of mercury would form in the sample, make electrical contact, react with and become fouled by the sample and then drop harmlessly to the bottom of the tank, to be replaced by a new drop. Thus, although the electrode was continuously being fouled it was also continuously being renewed.
Heyrovsky created a voltage across the positive and negative electrodes of the device, varied the voltage, and observed the current that was produced by increasing volt- ages. At a certain voltage, depending on the composition of the sample, the current would suddenly jump from one relatively constant level to another. This was so because at that certain voltage the substance diffused from solution to the negative or measuring electrode, was forced by that electrode to take on electrons, and caused a current to flow. The current produced was proportional to the rate of diffusion, which in turn was proportional to the concentration of the sample in solution; this is the basic principle behind polarography. Heyrovsky's invention was valuable because the voltage at which the reaction occurred could be used to identify the components of the sample and the amperage of the current generated could be used to determine the concentration of these components. Thus polarography, loosely defined, is a method of electrochemical analysis which involves the use of a voltage across a sample solution to generate a measurable current, which is then used to determine concentration of components in a sample.
Since 1923, there have been numerous improvements upon and new applications of the polarographic principle. It has been possible in many cases to replace the clumsy and limited dropping mercury electrode with solid electrodes that are easier to use; this replacement has sometimes involved protecting the electrode by a membrane selectively permeable to the substance to be measured. The membrane prevents both fouling and pollution while allowing the appropriate sample constituent to diffuse through to the measuring electrode.
In 1954, Dr. Richard Stow advanced the art of membrane electrochemistry by an elegantly simple invention that is part of the background to this litigation. The invention as he actually constructed it was not within the realm of polarography, but rather concerned a related field called potentiometric analysis. Stow placed both electrodes behind a single selectively permeable membrane, with one electrode surrounding the other concentrically, and was able to measure the concentration of carbon dioxide in blood, a measurement theretofore difficult to make. Stow did not patent his device, but disclosed it to the public by a published article and a public speech.
Beckman's licensor, Dr. Leland C. Clark, who is an appellant along with Beckman in this case, was also concerned with analysis of blood components. Specifically, he had been trying to find a way to measure blood oxygen content (in order to study respiratory diseases and the like), and had attempted to adapt polarographic techniques by covering one electrode with a membrane. Many others were attempting to make this same measurement; the problem had, in fact, confronted the scientific community for some time. One day the answer came to Clark all of a sudden: Instead of wrapping only one electrode in a membrane, he could put both electrodes behind the same membrane. This electrode arrangement, of course, was identical to the one Stow had invented. The cell Clark originally constructed had two concentric electrodes surrounded by a single selectively permeable membrane, and looked a great deal like the Stow device. It was successful in measuring oxygen in blood. Clark, who appears to have been somewhat more an entrepreneur than Stow, negotiated with Beckman, sold Beckman rights in his device, and assisted Beckman, in getting a patent on it. It is this patent upon which Beckman's suit in the instant case is premised. Since being patented, the Clark device has been refined considerably. Today, Beckman manufactures an instrument with the Clark cell miniaturized in the head of a needle so that it can be immersed in a patient's blood vessels to determine blood oxygen content while the blood is circulating in the body. Beckman has seventeen sublicensees and sale have run into the millions of dollars.
The allegedly infringing device manufactured by appellee Chemtronics is described in a patent secured by Dr. J. Ryan Neville, who is also an appellee. The purpose of the device is to sense the amount of oxygen inside aviators' masks. Neville apparently invented it without reference to Clark's invention, although he was aware of Clark's earlier work and the work of Stow.
II The Validity of the Patent Sued Upon
We find the patent sued upon in this case to be invalid for two independent reasons. The first is that the patent is anticipated by prior art. A written, its claim include only the invention of Stow, with no novel additions. The second is that Beckman, in securing the patent failed to fulfill the "uncompromising duty" of disclosure of an applicant before the Patent Office, because Beckman, while possessed of information regarding Stow's invention and realizing its significance, omitted that information from its patent application. The social and economic implications of a decision upholding a patent such as this would extend far beyond determination of the rights of the parties to this case, and we think such a decision would adversely affect the operation of the patent system Congress intended to create -- a patent system that should remain compatible, in so far as possible, with the goal of limiting monopoly to situations of probable public benefit.
At the outset, we should state what is not at issue here. Under the view we should state what is not at issue here. Under the
view we take of this case, we are not required to decide whether Dr. Clark created an invention that could have been
protected under a proper, lawfully secured patent. Thus the undeniable commercial success of the device, the fact that the
blood oxygen problem had previously evaded solution, and the subsequent acclaim the device was accorded are largely
irrelevant to our question. We assume for purposes of the following discussion that Clark's cell was patentable in some
manner. This assumption granted, there are many ways that a patent on the device could have been written, and appellants in
this instance chose to write it broadly and generally. Our attention must focus on the claims the patent actually makes. Cf.
Hensley Equip. Co. v. Esco Corp., 5th Cir. 1967, 383 F2d 252.
[Court' footnote: See Graham v. John Deere Co., supra , Transparent Wrap Mach. Corp. v. Stokes amp; Smith Co., 1947, 329 U.S. 637, 67 S.Ct. 610, 91 L.Ed. 563, Precision Instrument Manufacturing Co. v. Automotive Maintenance Mach. Co., 1945, 324 U.S. 806, 65 S.Ct. 993, 89 L.Ed. 1381, P. Areeda, Antitrust Analysis, Ch. 5 (1967)]
A. Anticipation of the Patent
Claims by the Prior Art
[The broad claims were found to be
anticipated]
* * *
B. Beckman's Failure to Disclose the Stow
Invention to the Patent Office
As we have pointed out, one reason for our de novo inspection of the patent against the Stow device is that the Stow invention was never brought to the attention of the Patent Office. There is no indication that this omission was caused by oversight; rather, all the evidence tends to show that Beckman made the omission deliberately. Appellants have not attempted to controvert that evidence, in fact, but have advanced the argument that Beckman was not required to set up "straw men it knew it could knock down" (i.e. obviously irrelevant prior art) in its disclosures to the Patent Office. Inasmuch as we have found that the Stow device is not only relevant but actually renders the patent invalid, we obviously cannot accept this categorization of it.
Appellants' conduct must be examined against the standard of conduct required of an applicant before the Patent Office. The Patent Office does not have full research facilities of its own, and it has never been intended by Congress that it should. In examining patents, the Office relies heavily upon the prior art references that are cited to it by applicants. It is therefore evident that our patent system could not function successfully if applicants were allowed to approach the Patent Office as an arm's length adversary. The Supreme Court has described the posture of a patent applicant as follows:
Those who have applications pending with the Patent Office or who are parties to Patent Office proceedings have an uncompromising duty to report to it all facts concerning possible fraud or in-equitableness underlying the applications in issue. * * * Public interest demands that all facts relevant to such matters be submitted formally or informally to the Patent Office, which can then pass upon the sufficiency of the evidence. Only in this way can that agency act to safeguard the public in the first instance against fraudulent patent monopolies.
Precision Instrument Manufacturing Co. v. Automotive Maintenance Mach. Co., 1945, 324 U.S. 806, 818, 65 S.Ct. 993, 999, 89 L.Ed. 1381.
The Sixth Circuit, in a case also involving prior art that an applicant had failed to disclose, explained the duty thus:
The Patent Office, not having testing facilities of its own, must rely upon information furnished by applicants and their attorneys. Pfizer and Cyanamid, like all other applicants, stood before the Patent Office in a confidential relationship and owed the obligation of frank and truthful disclosure.
Charles Pfizer & Co. v. FTC, 6th Cir. 1968, 401 F2d 574, 579. And in Corning Glass Works v. Anchor Hocking Glass Corp., D. Del. 1966, 253 F Supp. 461, 470, the court stated that "[absolute] honesty and good faith disclosure is necessary" in the filing of a patent application.
The district court held that the appellants were not guilty of "fraud" in this case. We find either that the district court was applying the wrong legal standard by construing fraud to mean something less than the "uncompromising duty" of disclosure required by the cases or, alternatively, that the finding is clearly erroneous under the evidence as a whole. We are left with the "definite and firm conviction" that appellants' conduct did not measure up to the legal standard.
In the first place, it is clear that Beckman's patent employees understood the significance of Stow's invention and knew that it presented a serious threat to the validity of the patent they were trying to secure. Beckman had previously been in touch with Stow. It had even furnished him materials that he used in making his invention. When Beckman was preparing to get the Clark device patented, its patent liaison employee Strickler came across Stow's work and wrote a memorandum to Beckman's manager of engineering and to the manager of the division in which he worked, stating as follows:
A related matter has now come up that creates a rather ticklish situation. As of early 1954, Dr. Richard W. Stow of Ohio State University Medical Center corresponded with our [Beckman's] Sales Department * * * concerning a glass electrode adaptation that he was developing for pCO2 measurement * * *. The electrode is similar to the Clark design in that reference and measuring electrodes are both placed behind a single semi-permeable membrane. The Stow device is clearly within the scope of claims now in the Clark application * * * Clark and Stow have known about each others' work * * *.
We do not at the present time know whether Clark or Stow is the prior inventor as concerns the broad claims of the Clark application.
Upon learning of this possible preemption of its newly acquired rights, Beckman quickly contacted Stow and attempted to purchase his invention as a protective measure. Stow replied, however, that his invention had been dedicated to the public, and Beckman was left with rights only in a device that it had reason to believe was not patentable. Appellants have not been able to controvert the evidence showing these facts, which are strongly established by the introduction of Strickler's letter.
In the second place, appellants not only failed to present the Stow device to the Patent Office, but also made affirmative representations in the papers they filed to the effect that there had been no previous invention displaying the properties that the Clark device had in common with the Stow device.
Appellants' only reply to these facts is that they did not consider Stow's work to be relevant prior art. This assertion, however, is rendered utterly incredible both by Beckman's conduct and by the obvious similarity of the Stow and Clark devices. Furthermore, the determination that the prior art did not render the patent invalid should have been left to the Patent Office rather than being decided privately by Beckman and Clark. Consequently, we conclude that there was no excuse for appellants' failure to disclose Stow's work to the Patent Office, and this conclusion prevents us from considering Beckman's conduct as fulfilling an "uncompromising duty" of good faith disclosure. We are constrained to hold the patent invalid on this ground, also.
III. Appellee's Antitrust Counterclaim
In addition to contesting the infringement suit against them, appellees have counterclaimed for treble damages under sections 1 and 2 of the Sherman Act. This antitrust counterclaim is based upon Walker Process Equip., Inc. v. Food Machinery & Chemical Corp., 1965, 382 U.S. 172, 86 S.Ct. 347, 15 L Ed 2d 247, in which the Supreme Court held that "the enforcement of a patent procured by fraud on the Patent Office may be violative of § 2 of the Sherman Act provided the other elements necessary to a 2 case are present. In such event the treble damage provisions of 4 of the Clayton Act would be available to an injured party." The court emphasized that only "intentional fraud," consisting of knowing and willful misrepresentation of material facts, was actionable, and that mere "technical fraud," or honest mistake in judgment was not.
Because of the trial court's disposition of the issues in this case, the antitrust counterclaim was never fully considered below. Since we take a different view of the case, we are unable to dispose of the counterclaim on this appeal. We think the case raises issues of fact that should be resolved in further proceedings in the trial court. Evidence in the record indicates that Beckman is by far the largest firm in the Clark-cell market, with just under half the industry's total sales. All other sales in this market have been subject to its royalty. There is also evidence that appellee Chemtronics, whose sales were approximately $25,000 the year before this suit was brought, suffered a 40 percent decrease in annual revenues after suit. There was testimony describing at least one instance in which Beckman threatened suit against a potential Chemtronics customer and caused that customer to withdraw its orders. Finally, there is evidence tending to show that appellants knew when they applied for their patent that they had omitted relevant, material prior art from their references. The trial court should look first to the evidence to determine whether appellants indulged in knowing, willful misrepresentation of material facts. If it finds that they did, it should then look to see whether the other elements of Sherman Act violations are present - whether, for example, as regards monopolization, appellants have market power in some relevant market, whether they have used this power unlawfully, and whether they have directly caused appellees to suffer damage.
* * *
We do not fully understand the basis of appellees' other claim, that under section 1, but leave appellees to develop it, if they can do so, before the trial court. Provided the proper elements are present, we see no reason why the Walker cause of action should not encompass section 1 suits as well as monopolizations. Cf. Lear, Inc. v. Adkins, 1969, 395 U.S. 653, 89 S.Ct. 1902, 1910 - 1911, 23 L Ed 2d 610; United States v. Singer Mfg. Co., 1963, 374 U.S. 174, 83 S.Ct. 1773, 10 L Ed 2d 823.
Grefco, Inc. v. Kewanee Industries, Inc.,
499 F. Supp. 844, 208 USPQ 218
(D. Del. 1980)
This is an action for patent infringement of United States Patent No. 3,510,391 brought by plaintiff Grefco, Inc. ("Grefco") against defendant Kewanee Industries, Inc. ("Kewanee"). Kewanee has counterclaimed for a declaratory judgment of patent invalidity, unenforceability and non- infringement.
* * *
I. BACKGROUND FACTS
Grefco, a Delaware corporation and a wholly owned subsidiary of General Refractories Co., was formerly the Mining and Mineral Products Division of Great Lakes Carbon Corp. ("GLC") and was acquired by General Refractories on or about May 16, 1966. (Stip. No. 1). Although at the time of many of the events discussed throughout this Opinion plaintiff was operating as a division of GLC, it will be referred to as "Grefco" unless otherwise indicated.
Kewanee is a Delaware corporation into which Apache Foam Products ("Apache") was merged effective February 3, 1976. Historically, Apache was purchased by the Millmaster - Onyx Corporation on September 29, 1967 from Air Products and Chemical Company. It was a division of Millmaster- Onyx Corporation until September, 1974, when it was incorporated as a wholly-owned subsidiary of Millmaster-Onyx Corporation. In 1976, Apache was merged into Kewanee and Millmaster-Onyx became an independent financial group within Kewanee.
U.S. Patent Application Serial No. 638,629 ("Bolster application") was filed on May 15, 1967 in the United States Patent and Trademark Office ("PTO") on behalf of Lyle R. Bolster ("Bolster"), Harlan E. Tarbell ("Tarbell") and Donald W. Mogg ("Mogg"). Armand McMillan ("McMillan"), then assistant patent counsel for GLC, prepared and filed the Bolster application with the knowledge and consent of General Refractories. On September 23, 1969, Patent Examiner William J. VanBalen ("Examiner") issued an Office Action indicating that all claims of the application would be allowable if amended. The minor changes suggested by the Examiner were then made and the patent issued on May 5, 1970. (PX-1, Stip. No. 32). Grefco owns the Bolster patent.
The Bolster patent is entitled "Perlite Board Bonded to Organic Plastic Foam."
* * *
Application of the three-prong Graham tests, consideration of the secondary factors set forth in Graham and an analysis of the patentability of combination patents all lead to the inescapable conclusion that the Bolster patent is invalid as obvious under 35 U.S.C. § 103.
III. GREFCO'S CONDUCT BEFORE THE PATENT OFFICE
Kewanee contends that Grefco's prosecution of the Bolster patent before the PTO involved fraudulent conduct, thereby rendering the patent invalid and unenforceable. Its contention addresses essentially two sections of the patent application: misrepresentation or omission of the most pertinent prior art (PX-2 at 1/29-2/36) and misrepresentation and concealment of the results of experiments and tests referenced in examples 1-6 (PX-2 at 4/45-7/8).
A. The Legal Standards
Kewanee has the burden of proving Grefco's fraud "clearly, unequivocally and convincingly." In Re Multidistrict Litigation Involving Frost Patent, 540 F2d 601, 603 (3d Cir. 1976) (hereinafter "Frost "); DeLong Corp. v. Raymond International, Inc., 622 F2d 1135 at 1145-46 (3d Cir. 1980). There are two necessary elements of a finding of fraud. The alleged infringer must first prove that the omission or misrepresentation was "material" in the sense that it made it "impossible for the Patent Office fairly to assess the patent application against the prevailing statutory criteria." Frost, supra, 540 F.2d at 604 n.9, citing Monsanto Co. v. Rohm & Haas Co., 456 F.2d 592, 600 (3d Cir. 1972). Second, the patentee must possess "an affirmative intent to deceive or at least a gross negligence or recklessness in misrepresenting the truth." DeLong Corp., supra, 622 F.2d at 1146.
Participants in proceedings before the PTO are held to high standards of conduct because of the ex parte nature of such proceedings, see generally PIC, Inc. v. Prescon Corp., 485 F. Supp. 1302, 1309- 10 (D. Del. 1980), and because of the Patent Examiner's relative inability to test the veracity of certain representations made to him. Frost, supra, 540 F.2d at 611 n.36; Norton v. Curtiss, 433 F.2d 779, 793 -94, 57 CCPA 1384 (1970). See Hercules v. Exxon, 497 F. Supp. 661, 690 (D. Del. 1980), Tr. 2951-52.
In Standard Oil Co. v. Montedison, S.p.A., 540 F.2d 611 (3d Cir. 1976), the Third Circuit Court of Appeals wrote,
One who prosecutes an application for a patent must meet the highest standards of conduct in dealing with the Patent Office. An applicant who seeks to obtain a patent for his invention is asking the government for the grant of a monopoly which concerns not only other private parties who may also be claiming the same invention, but which involves issues of great moment to the general public as well. The circumstances surrounding such a proceeding must be wholly free from fraud and other inequitable conduct.
540 F.2d at 616.
This Court has recently stated that
"(a) party who withholds information does so at its own risk since it is ultimately the duty of the (Patent Office), and not of the applicants and their attorneys, to determine what information is relevant."
Standard Oil Co. v. Montedison S.p.A., 494 F. Supp. 370, at 436 (D. Del. 1980). The Court went on to explain,
"(i)t is the province of a patent examiner, and not a party, to determine what data is relevant and to elicit it from the parties. When requested to do so, the parties must supply available information. Although a party may subsequently attack such information as unfair or irrelevant, it cannot attempt to perform the examiner's function by determining the validity of its own case."
Id. at 444 (emphasis added).
At the same time, this Court and the Third Circuit Court of Appeals have consistently recognized that patent applicants and their attorneys are not held to an absolute, inflexible duty of disclosure in their dealings with the PTO. In Johnson and Johnson v. W. L. Gore & Associates, Inc., 436 F. Supp. 704 (D. Del 1977), Judge Wright stated,
The applicant should be accorded the right to exercise good faith judgment. Only when he is guilty of fraud, willfulness or recklessness indicating a disregard for his duty of candor should enforcement of the patent be barred. Xerox Corp. v. Dennison Mfg. Co., 322 F. Supp. 963, 968-69 (SD NY 1971).
As Judge Stapleton expressed in Tokyo Shibaura, supra (Tokyo Shibaura Electric Co., Ltd. v. Zenith Radio Corp., 404 F. Supp. 547 (D. Del. 1975), aff'd, 548 F.2d 88 (3d Cir. 1977)):
A patent attorney has no absolute duty to perceive that which one skilled in the art would have perceived if left in a room to study a display of all the prior art. His duty is one of candor and this duty leaves room for the exercise of good faith judgment even if that judgment ultimately is held to have been faulty. 404 F. Supp. at 569.
436 F. Supp. at 732.
In DeLong Corp., supra, the Third Circuit Court of Appeals held that
Without more the mere misstatement in the patent application that there had not been a prior sale of the invention for more than one year prior to the date of the application, particularly when the circumstances pertaining to the transaction required a sifting of the facts, will not support a finding of fraud.
622 F.2d at 1146.
It is against this legal framework that Kewanee's allegation of fraud must be examined.
B. Prior Art Section
Kewanee contends that McMillan fraudulently misrepresented the state of the art in the prior art section of the Bolster application. Specifically, it cites his alleged failure to disclose that perlite board and rigid urethane foam were among the four leading roofing insulation boards in commercial use prior to the application and his failure to disclose the substance of the JCP article which indicated that fiber board and urethane combinations "qualified" on industry construction tests and which, it has been found herein, constituted a disclosure of perlite board and urethane foam to a man of ordinary skill in the art. Grefco contends that McMillan's description of the prior art was "fair and adequate."
In the prior art section of the Bolster patent, McMillan did not refer the Examiner to specific pieces of prior art, but rather attempted to summarize developments in the roofing industry and the findings or teachings of several publications.
* * *
McMillan's statement with regard to urethane board concludes as follows:
"it will be readily seen why the use of urethane board is undesirable for roof insulation even in cases where the combustibility and the smoke generating properties of the urethane might be tolerated."
Mogg testified that the conclusory statement was accurate only with respect to urethane foam boards without felt facings
on either side of the foam. Indeed, Mogg testified that facings such as roofing felt were placed on urethane foam "to protect
the foam from physical abuse or the weather," thereby addressing the specific disadvantage attributed to urethane foam.
There is also evidence that the urethane foam boards with felt facings on both sides, made both by Apache and Barrett, were "a major factor in the market." Finally, there is evidence that urethane foam board was "one of the four main roof insulation boards" in use prior to the Bolster application. It is thus readily apparent that the discussion of urethane foam in the Bolster patent was somewhat inaccurate with respect to the use of such boards in the roofing industry as well as their drawbacks. However, "under the totality of circumstances," Monsanto, supra, 456 F.2d at 600, Frost, supra, 540 F.2d at 611, the Court does not find that these inaccuracies were fraudulent. Attempts to address the problem of physical abuse were disclosed n22 as were the facts that rigid foam boards were widely used and that urethane foam was the preferred foam material of the building industry. The Court therefore does not believe that McMillan's description of the use and properties of urethane foam precluded the Examiner from "assessing the patent application against the prevailing statutory criteria."
With respect to perlite board, the patent application states that this is "another type of board much used in construction" praises its resistance to heat, reaction to molten bitumen, and performance on standard flame spread tests and notes the low insulating capacity of perlite board. The discussion of perlite board concludes with the following statement:
The excessive thickness of perlite board that its higher conductivity requires causes building design and construction problems which have generally resulted in the exclusion of perlite board from such applications. In other words, the use of conventional perlite board is generally limited to buildings in which a moderate amount of insulating value is required.
While it is true that perlite board was one of the four main roofing insulation materials in use at the time of the Bolster application, the Court does not find that the discussion of perlite in the prior art section of the Bolster patent fraudulently misrepresents the facts. On the whole, the Court finds the discussion to be reasonably balanced, although perhaps moderately exaggerative with regard to the "limited" use of perlite board.
Kewanee's final contention with respect to Grefco's "misrepresentations" of the prior art concerns the JCP article. The prior art statement of the Bolster application discussed the use of "dense, incombustible materials" in combination with urethane foam. Those materials listed, taken from a variety of sources reviewed by McMillan were "asbestos cement board, porcelained or enameled steel, aluminum, tempered glass." With regard to the findings of the JCP article, McMillan wrote,
It is interesting to note that plastic foams are considered unsuitable for use in roof deck insulation when a steel deck is employed; fiber board has been suggested as a barrier between the deck and the foam in such a case.
McMillan testified that the information concerning the use of fiber board came from the JCP article and that, although the JCP article is nowhere referenced in the application, he intended to disclose "the substance" of the article to the PTO. However, McMillan also testified that his understanding of the statement in the JCP article that "plastic foams that offer no resistance under fire conditions would require one inch of fiber board or other barrier over the deck and under the foam in order to qualify" was that "whatever the problem was that prevented the use of plastic foams directly on steel decks would be solved." In other words, while McMillan believed that the problem addressed by the Bolster patent-the inability of urethane foam to be used as roofing insulation over a steel deck-was "solved" by the JCP article, he told the PTO that the use of fiberboard was merely "suggested as a barrier . . . in such a case." Moreover, McMillan believed (erroneously) that the reference to expanded perlite in the footnote on page 361 of the JCP article referred to perlite board. He never discussed with the inventors, however, what the term "or other barrier" referred to, despite this belief that perlite board was disclosed by the JCP article. While, as recently noted by Judge Wright, courts are "reluctant to find fraud in an attorney's failure to cite prior art references," Hercules v. Exxon, supra, 497 F. Supp. at 691, the Court finds that McMillan's failure to direct the PTO's attention to the JCP article was fraudulent.
In United States v. Standard Electric Time Co., 155 F. Supp. 949 (D Mass 1957), Judge Wyzanski discussed the extent of the duty to disclose prior art:
Of course, a putative inventor must disclose any printed publication which he either knows or believes describes the very invention claimed. United States v. American Bell Telephone Co., 128 U.S. 315, 355-356, 9 S. Ct. 90, 92-93, 32 L. Ed. 450. More than this, if he knows of a printed publication which plainly describes his claimed invention, or comes so close thereto that every reasonable man would say the invention claimed was not original but had been anticipated, then regardless of his personal view that he is the original inventor, he will not be excused for his failure to disclose his knowledge.
155 F. Supp. at 952, cited in Hercules v. Exxon, supra, 497 F. Supp. at 691.
The JCP article, it has been found herein, anticipates or, in the alternative, renders obvious the Bolster patent. Consequently, McMillan's failure to cite this publication or to disclose the importance of its findings in the patent application goes to the very heart of the Examiner's task of determining patentability under the applicable statutory criteria. Thus, with respect to this allegation, the Court finds that all the elements of fraud have been proved by clear and convincing evidence. Frost, supra; Monsanto, supra.
[The court noted in footnote 24:
This omission is especially material because the JCP article directly contradicts the statement at the conclusion of the examples that "it is equally evident that other materials which have been suggested in this type of application or which might be considered equivalent, have failed to achieve satisfactory performance." * * * In fact, it was the JCP article which most likely prompted Mogg and his co-inventors to run tests on fiber board/urethane composites so as to "check" the results disclosed in the JCP article in an effort to prove the superiority of perlite/urethane composites. Clearly, Grefco's theory of patentability at the time of the filing of the Bolster application was its superior performance in comparison to fiber board and fiberglass. It is clear then that the omission or misrepresentation of the JCP article was material. See Frost, supra, 540 F.2d at 610 (statement in affidavit that patent invention produced "markedly superior results to those obtained by utilization of any of the solvent materials disclosed in any of the reference patents" found to be "extremely troubling" in light of attorneys' knowledge that "there existed data casting some doubt on the accuracy of this statement.").]
C. Examples
1. Introduction
The Bolster application contained six examples which purported to report the results of various experiments and tests conducted on the claimed invention and materials suggested by the prior art. Examples 1-4 described the results of a "tunnel test" and "gas-air burner flame test" ("gas-air test") involving composites of perlite board and plastic foam. Example 5 compared the results of a perlite/foam composite with a fiberglass/foam composite on the gas-air test, and example 6 reported the failure of a fiber board/urethane composite on the gas-air test. The purpose of these examples was "to illustrate the invention and the improved properties thereof." (PX-2 at 4/39-40, Tr. 1245). Following the examples, it is stated:
It stands therefore demonstrated by the results of the foregoing examples that perlite boards are peculiarly successful in composite structures with thermosetting and thermoplastic rigid organic foams. It is equally evident that other materials which have been suggested in this type of application or which might be considered equivalent, have failed to achieve satisfactory performance.
The Court finds that all six examples had the purpose of demonstrating the patentability over prior art of the invention claimed in the Bolster application. Although only examples 5 and 6 involved direct testing of perlite composites against fiber board and fiberglass composites, it is clear from a reading of the introductory and conclusory statements regarding the examples and from McMillan's testimony n25 that all six examples were designed to impress the Examiner with the superiority, and hence patentability, of perlite board composites over prior art substrates.
2. Misrepresentations of Test Results
In example 1, it was reported that a 1 layer of polyurethane foam stabilized on a 1 perlite board "passed the tunnel test and successfully withstood a gas-air burner flame test for more than 10 minutes." (PX-2 at 5/2-4). In this example, these two tests were described, with the "tunnel test" referring to an Underwriters' Laboratories ("UL") n26 test (PX-2 at 5/6-31), and the gas-air test identified as a test "devised (by Grefco (Tr. 691)) to compare the flame resistance of various composite boards."
Although the evidence presented by Grefco with respect to the testing of examples 1 through 4 was often inconsistent, confusing and incomplete, the Court finds that the composite referenced in example 1 was never tested in the UL tunnel test and therefore could not have "passed" such a test. Instead, this sample was most likely tested on a so-called "modified Bunsen burner test" which was referred to by Grefco at trial as a "simulated tunnel test." Tarbell testified that a sample as set forth in example 1 passed the modified test. Thus, example 1 is incorrect in its report that the sample "passed the tunnel test." Since the patent refers only to the tunnel test conducted by UL, as McMillan acknowledged, a reader of the patent could only assume that the sample passed the UL tunnel test. Thus, example 1 describes the results of a test that was never run.
With respect to example 2, the Court finds that a sample of 1 "high density polyurethane" and 1 perlite board was successfully tested at UL. Mogg and McMillan both clearly so testified Tarbell, however, testified that example 2 was not tested at UL, but rather passed the "simulated tunnel test." On this point, the Court credits the testimony of Mogg and McMillan over that of Tarbell and finds that example 2, a composite of 1 polyurethane and 1 perlite board, passed the UL tunnel test. There is no evidence, however, that the density of the polyurethane portion of this composite had a density of "3.2 lbs. per cubic foot" as set forth in example 2. Documentation refers only to this sample as consisting of "higher density foam." The parties are agreed, however, that the sample of 1 foam and 1 perlite that passed the UL tunnel test in March, 1966 had a density of 3.95 lbs./cu.ft. (Doc. No. 192 at 39, 80), and it is clear to the Court, despite Tarbell's denial (Tr. 957), that the sample sent to UL is that referenced in DX-S containing a density of 3.95. Therefore, given the credited testimony that example 2 was actually tested at UL, one can only conclude that example 2 incorrectly states the density of the foam as 3.2 lbs./ cu.ft.
The efforts of the parties and the Court to ascertain the circumstances surrounding the inclusion of example 3 in the patent application produced perhaps the most mystery and drama of the trial. Upon review of the evidence, it now appears that a sample of "3/4 dry process perlite board, 1 low density polyurethane foam (2.0 lbs./cubic foot) and 5-mil Kraft paper," as set forth in example 3, was never tested at UL, although that example states that "(t)he resulting assembly . . . passed the tunnel test." (PX-2 at 20-26). See Tr. 231, 440-42, 446-47, 960-63, 1077-78, 1163. Grefco did, however, submit samples of 3/4 wet process perlite/ urethane composites to UL for testing in April, 1967 and in August, 1967. Neither test result was disclosed to the PTO, either in the application or in subsequent discussions between Grefco patent counsel and the Examiner.
* * *
Grefco's attempts to excuse its failure to disclose the April, 1967 UL results by relying on doubts as to the test's validity are further undermined by the fact that the August, 1967 test on a 3/4 perlite/urethane composite, conducted without a kerf, resulted in a flame spread value of 30. While the absence of a kerf in the August test may have reduced somewhat the flame spread value, unkerfed 3/4 perlite board still did not sufficiently protect the urethane foam. Despite these adverse test results on 3/4 perlite composites, the patent application states unequivocally that such a composite "passed the tunnel test." Thus, the patent Examiner was told the combination of 3/4 perlite and urethane had passed the UL tunnel test when in fact it failed twice.
Based on the evidence, it is also apparent that example 4, which describes a sample of "2 commercial polyvinyl chloride foam slab (adhered to) a 1 dry process perlite board" is incorrect in stating that the "composite board . . . was found acceptable" by the tunnel test. Such a sample was tested, if at all, only on the so-called "simulated tunnel test" and not on the UL test.
Thus, the Bolster application states that four examples passed the UL tunnel test, when McMillan and Mogg believed at the time that only example 2 did so, and when Tarbell believed that none of the examples had done so. Moreover, the unsuccessful results of the April, 1967 and August, 1967 tests on 3/4 perlite board were not disclosed to the Examiner.
3. Analysis
As mentioned at page 860, supra, patent applicants are held to a high standard of conduct before the PTO due in part to the Office's inability to verify independently many of the representations made to it. This is particularly true when the representations pertain to the results of tests or experiments conducted by applicants. Since patent examiners are not equipped to perform their own tests and experiments, they must rely upon the candor and good faith of the applicants in reporting such results. See Norton v. Curtiss, 433 F.2d 779, 794, 57 CCPA 1384 (1970), Hercules v. Exxon, supra, at 690, CPC International, Inc. v. Standard Brands Inc., 385 F. Supp. 1057, 1067 (D Del 1974), Monsanto Co. v. Rohm and Haas Co., 312 F. Supp. 778, 793 (ED Pa 1970), aff'd, 456 F.2d 592 (3d Cir.), cert. denied, 407 U.S. 934, 92 S. Ct. 2463, 32 L. Ed. 2d 817 (1972). This Court and the Third Circuit have therefore been particularly vigilant in requiring patent applicants to disclose all pertinent tests results. See e.g., Hercules v. Exxon, supra, at 698, Frost, supra, 540 F.2d at 609-11, Monsanto, supra, 456 F.2d at 599-600.
In the instant case, Grefco failed to disclose the two unsuccessful UL tests on 3/4 perlite composites and misrepresented to the PTO that examples 1, 3 and 4 passed the UL tunnel test. At the same time, as previously found, Grefco did inform the PTO of the successful UL testing of example 2. * * * No case has upheld such conduct against allegations of fraud. See Frost, supra, 540 F.2d at 609-10, Monsanto, supra, 456 F.2d at 599-600;
While the co-inventors' good faith belief excuses their failure to disclose that examples 1 and 4 had not been tested on the UL tunnel test for purposes of a finding of fraudulent conduct, the Court finds that the inventors' "doubts" as to the validity of the UL tests on 3/4 perlite composites do not excuse their failure to apprise the Examiner of the results of these tests. n37 The doubts relating to the fact that 11/16 board may have been tested has been found to be an afterthought, see note 30 supra, the contention that the 11 minute test affected the test results has been discounted, note 31 supra, and the concerns expressed at trial about the effect of the kerf in the April test are not persuasive in light of the conduct of Grefco in running the test (with the kerf) to see whether 3/4 perlite was in fact operable, see page 40 supra. Second, and most important, any doubts the inventors had about the validity of the tests of 3/4 perlite board composites should have been disclosed to the Examiner for his determination. See Frost, supra, 540 F.2d at 609-10, Standard Oil v. Montedison, S.p.A., supra, 494 F. Supp. at 444. Instead, Grefco chose to usurp the function of the Examiner when it withheld test results because they were, in its view, "inconclusive" or invalid. Grefco's argument to this Court that the April, 1967 and August, 1967 tests support, rather than harm, its theory of patentability would have been better presented to the Examiner, along with disclosure of the results.
The Court finds that the omission and misrepresentation of test results were material to the Examiner's consideration of the Bolster application. While it is true that examples 1-4 did not directly compare the performance of perlite with fiber board or fiberglass as a substrate for use with urethane, and that the prior art solutions were not tested, according to the patent, n38 by the tunnel test method, these examples still were an integral part of Grefco's overall theory of patentability that its invention worked and protected urethane foam from fire while the prior art "equivalents" did not. The patent itself states, "(i)t stands therefore demonstrated by the results of the foregoing examples that perlite boards are peculiarly successful in composite structures with thermosetting and thermoplastic rigid organic foams." Clearly, a purpose of examples 1-4 was to demonstrate that perlite board of 3/4 and 1 thickness successfully protected urethane.
There is no question that the UL tunnel test had great significance in the roofing industry at the time of the Bolster application. In fact, the patent itself indicates that the passage of "a new type of urethane foam" on the ASTM E 84 tunnel test made it "suitable for some of the more incombustible types of construction." The Examiner might justifiably have placed greater weight upon the information in the patent that the perlite samples passed the UL tunnel test than he would had he known that the passage was actually on a "simulated test." Similarly, it cannot be said that the disclosures of the unsuccessful results of the UL test run on the 3/4 boards would have been unimportant to the Examiner. Moreover, had the Examiner been advised that "one inch of fiber board or other barrier" qualified on industry construction tests and that 3/4 perlite board did not, he might seriously have questioned whether the Bolster patent should be granted with the .6 and 3/4 limits of claims 1 and 7, respectively, and, if not, whether a 1 perlite board composite was really new in light of the JCP disclosures. Thus, the nondisclosure of the results of the two UL tests on 3/4 board and the misrepresentation of the passage of example 3 prevented the Examiner from fairly assessing the Bolster application against the applicable statutory criteria of utility, anticipation and obviousness.
The Court has no difficulty in finding that Kewanee has met its burden of proving that Grefco's conduct in its reporting of test results to the PTO was the product of "an affirmative intent to deceive or at least a gross negligence or recklessness in misrepresenting the truth." DeLong, supra, 622 F.2d at 1146. Tarbell witnessed the April, 1967 test at UL, there can be no doubt that he was aware of the results prior to the filing of the application. Mogg was also aware, prior to May 15, 1967, of the fact that the 3/4 board received a flame spread value of 50 on the UL tunnel test.
* * *
McMillan testified that had Tarbell reported a "rating of failure," he would have had to "look at the rating and decide whether there was some valid invention left or not" and might have "closed the whole case."
* * *
McMillan was also never informed of the results of the August, 1967 test on 3/4 perlite composite Mogg and Tarbell, however, were informed of the results shortly after the test was performed. Despite this knowledge, the test results were not disclosed to the PTO. Grefco does not contend that simply because the test results were learned after the filing of the patent application, they need not be disclosed. Such a rule of law would be contrary to the requirement of high standards of conduct in proceedings before the PTO. In Precision Instrument Manufacturing Co. v. Automotive Maintenance Mach. Co. Co., 324 U.S. 806, 818, 65 S. Ct. 993, 999, 89 L. Ed. 1381 (1945), the Court stated:
Those who have applications pending with the Patent Office or who are parties to Patent Office proceedings have an uncompromising duty to report to it all facts concerning possible fraud or inequitableness underlying the applications in issue.
It is immaterial whether the failure to disclose the UL test results of April, 1967 and August, 1967 was due to an affirmative intent to deceive the PTO or to gross negligence on the part of McMillan and the inventors. Consideration of all the evidence presented on this issue, including the materiality of the omissions and representations, see Hercules v. Exxon, supra, 497 F. Supp. at 696, the failure of the inventors to inform McMillan of the results while knowing of his interest in them and McMillan's failure to secure the results given his belief that the UL results were important, leads to the conclusion that Kewanee has proved, clearly and convincingly, that Grefco's conduct before the PTO in this regard was fraudulent.
IV. Conclusion
For all the reasons set forth herein, the Court finds that the Bolster patent is invalid under 35 U.S.C. §§ 102, 103 and is invalid and unenforceable because of Grefco's fraudulent conduct in the procurement of the patent. The Court further finds that Grefco's conduct before the Patent Office makes this an "exceptional case" under 35 U.S.C. § 285 and therefore, attorney's fees will be awarded to Kewanee. See Watts v. University of Delaware, 471 F. Supp. 1272, 1285 (D. Del. 1979), rev'd on other grounds, 622 F.2d 47 (3d Cir. 1980), W. L. Gore & Associates, Inc. v. Oak Materials Group, Inc., 424 F. Supp. 700, 704-05 (D Del 1976), Chromalloy American Corp. v. Alloy Surfaces Co., Inc., 353 F. Supp. 429, 431 (D. Del. 1973), Mueller Brass Co. v. Reading Industries, Inc., 352 F. Supp. 1357, 1380 (ED Pa 1972), aff'd mem., 487 F.2d 1395 (3d Cir. 1973). If the litigants cannot agree as to the appropriate amount of attorney's fees, upon receipt of advice to that effect, a hearing will be scheduled for disposition of the attorney's fees issue.
Tokyo Shibaura Electric Co., et al v. Zenith Radio Corp.
404 F. Supp. 547, 188 USPQ 55 (D. Del 1975)
Stapleton, J.
I. PARTIES AND JURISDICTION
This is a declaratory judgment action which poses questions regarding the validity, infringement and enforceability of a patent on certain improvements in color television picture tubes. Plaintiffs sell color television picture tubes in the United States. Toshiba seeks a judgment declaring the invalidity, non-infringement and unenforceability of Zenith's United States Letters Patent No. 3,146,368 (the "'368 patent"), issued August 25, 1964 to J. P. Fiore and S. H. Kaplan. Zenith, as Their assignee, has counterclaimed for infringement of the '368 patent by Toshiba. These issues have been tried, and I find that there exists a substantial and actual controversy between the parties on the issues presented in this action, justifying a declaratory determination of their respective rights.
II. BACKGROUND FACTS
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Several different kinds of television picture tubes were proposed for use in the new "compatible" system and competed for favor in industry laboratories for some years. Although only one type ultimately entered commercial production, three types play a role in the present action and a description of the structure and operation of each is necessary.
A. Common Features Of Relevant Tubes
In all three types of tubes, the color picture seen by the viewer is created in the same basic manner. On the inside surface of the viewing screen of the picture tube are deposited a very large number of "phosphors" -- chemical materials which have the property of emitting visible light when bombarded by electrons. Different phosphors will emit light of different colors, and by placing phosphors which emit the three "primary" colors of red, blue and green in close conjunction with each other on the viewing screen, any visible color can be reproduced by bombarding a suitable combination of these phosphors.
This bombardment is accomplished by means of one or more "beams" of electrons generated by one or more "electron
guns" which are mounted in the neck of the tube and which project the beams onto the viewing screen. These beams
bombard only a small portion of the screen at any one instant, but the different phosphors are so small and so close together,
and the beam "scans" the viewing screen at so rapid a pace, that the human eye can perceive only a single color picture.
The electrons striking the glass viewing screen have a tendency to remain there. Their accumulation can cause the screen to repel the similarly charged electrons aimed at it on the beam's next scan and for this reason a thin layer of aluminum is ordinarily placed on top of the phosphors on the inside surface of the viewing screen. This layer not only conducts the electrons away from the screen after they have bombarded the phosphors but also increases the efficiency of the phosphors by reflected out to the viewer the light initially emitted by the phosphors towards the inside of the tube.
B. The Shadow Mask Tube
* * *
The shadow mask tube, which is the type of tube used in every commercially available color television set today accomplishes this essential function of color selection by utilizing three electron guns and a "shadow mask" from which it takes its name.
A shadow mask is a thin metal membrane which is placed inside the tube, immediately behind and parallel to the screen.
* * *
The mask is perforated with a very large number (a third of a million would be a typical number) of small apertures, each aperture positioned directly behind the center of a set or "triad" of three adjacent phosphor dots or stripes, one of each primary color.
In the shadow mask tube, the electron beams that bombard the phosphors come from a cluster of three electron guns, with each gun emitting the electrons intended to strike only the phosphors of a given color The geometrical relationship of the guns, the mask and the screen is designed such that the beams from the three guns converge at the mask, with each beam at a different angle. The result is that only so much of each beam as will strike the correct phosphor is able to pass through the mask. * * * It is in this manner that the color selection is achieved in a shadow mask tube.
* * *
C. The Post-Deflection Focusing Tube
One disadvantage of the simple shadow mask tube *** is that the mask intercepts the bulk of the electrons generated by the electron guns, thus considerably reducing the brightness of the picture which can be generated by a gun of a given efficiency. * * * The apertures in the mask are enlarged, permitting more electrons to pass through. Without more, this would defeat the color selection function of the mask. However, by operating the viewing screen at a higher voltage or potential than the shadow mask, the electron beams passing through the apertures can be focused down to acceptable size.
* * *
D. The Index Tube
In index tubes, the phosphors are deposited on the viewing screen in stripes. Only one electron gun is used its single beam sweeps across the screen, bombarding the phosphors of each color in turn. There is no shadow mask, the electron beam has direct, unimpeded access to the screen. Color selection thus must be accomplished by precise synchronization of the position and modulation of this beam, so that, for example, it bombards only the red phosphors during those moments when it is transmitting red picture information. The practical problem involved in achieving this sort of control with the required precision has never been overcome with sufficient success to make commercial use practicable.
III. PROBLEMS IN EARLY COLOR
TELEVISION TUBES
Shadow mask color picture tubes of the sort described above were built in the laboratory as early as 1950, and were in commercial production by 1954. However, these early or "conventional" tubes did not project as good a picture as contemporaneous black and white television tubes. The reason lay in the interrelated problems of achieving "color purity", "white uniformity", "brightness" and "contrast".
* * *
The major difficulty involved in the manufacture of a shadow mask tube which is not present in black and white tube technology is the extreme accuracy demanded in the fabrication and relative positioning of the viewing screen and the mask. Because the mask apertures and the phosphor dots are so tiny and so close together, even the slightest misalignment in these two parts will cause misregistration of the electron beams, resulting in a loss of color purity and white uniformity. It is, however, impossible to achieve such perfection in a mass production context. The practical solution is, instead, to make allowances in the design of the tube for a certain amount of leeway, or "tolerance", for error. In all commercial tubes made prior to the '368 patent, this was done by making the apertures in the shadow mask slightly smaller than the phosphor dots on the screen. This in turn made the beam landing areas on the screen smaller than the phosphor dots they were supposed to hit. The net result was a "guardband" surrounding the beam landing area within the phosphor which guardband simultaneously provided both "clipping" and leaving" tolerance, the amount of the tolerance in each case being the width of the guardband. With this dual tolerance, * * * no harm would occur if a beam "wandered" slightly because of misalignment of the mask and screen. As can be seen, only if the beam is misplaced by a distance greater than the width of the "guardband" surrounding it, will it leave its proper phosphor or impinge upon another.
* * *
These interrelated problems were apparent to everyone in the industry, and various research groups attempted to find ways in which to achieve a better overall blend of color purity, white uniformity, brightness and contrast.
IV. THE SOLUTION OF THE '368
PATENT
The patent in suit teaches that the problems just discussed can be alleviated by constructing the tube it discloses and claim. Claim 1 of the '368 patent describes a tube which conforms in general to the conventional shadow mask tube described above. But the tube described in Claim 1 differs in a number of ways. The claim calls for each phosphor area to be "spaced from all adjacent such areas by intermediate light absorbing areas" and for the shadow mask to be perforated by apertures which are "individually larger than" the phosphor dots.
* * *
The picture presented by such a tube has better contrast than that of a conventional tube, since, as the patent's specifications point out, the reduced amount of the screen covered by phosphors, combined with the black, light absorbing material which occupies the rest of the screen, makes it much less reflective of room light. Claim 3 then teaches that a clear glass viewing screen can be used with such a tube. This will tend to reduce the improvement in contrast, but will yield substantially better brightness.
* * *
This feature, now known in the art as "negative tolerance is clearly disclosed by the specification and drawings of the '368 patent, as Toshiba's expert concedes. However, as the parties agree, it is only the claims of a patent which are the measure of its asserted invention. 35 U.S.C. § 112, Graham v. John Deere Co., 383 U.S. 1, 17-18 (1966). Toshiba argues that the '368 patent does not claim the negative tolerance concept, for unlike the specification, the claims refer solely to the relationship between the mask apertures and the phosphors and nowhere explicitly suggest that the electron beam landing areas should be larger than the phosphor dots.
* * *
A patent's claims, however, are not to be read in a vacuum, rather, "it is fundamental that claims are to be construed in the light of the specifications and both are to be read with a view to ascertaining the invention." United States v. Adams, 383 U.S. 39, 49 (1966) (citations omitted), Ethyl Corp. v. Borden, Inc., 427 F.2d 206, 209 (3rd Cir. 1970).
* * *
I conclude that Bingley, within its four corners, does not provide "adequate directions for the practice of" the negative tolerance concept in the context of a shadow mask tube. This does not, however, answer the question of whether the teachings of Bingley rendered obvious those of the '368 patent.
VI. OBVIOUSNESS
Another requirement for the issuance of a valid patent is established by § 103 of the Patent Act, 35 U.S.C. § 103:
A patent may not be obtained though the invention is not identically disclosed or described as set forth in section 102 of this title, if the differences between the subject matter sought to be patented and the prior art are such that the subject matter as a whole would have been obvious at the time the invention was made to a person having ordinary skill in the art to which said subject matter pertains. Patentability shall not be negatived by the manner in which the invention was made.
A decision as to the obviousness of an invention calls for the application of a "practical test" which is to be made in the context of
. . . several basic factual inquiries. Under § 103, the scope and content of the prior art are to be determined; differences between the prior art and the claims at issue are to be ascertained; and the level of ordinary skill in the pertinent art resolved. Against this background, the obviousness or nonobviousness of the subject matter is determined. Such secondary considerations as commercial success, long-felt but unsolved needs, failure of others, etc., might be utilized to give light to the circumstances surrounding the origin of the subject matter sought to be patented. As indicia of obviousness or nonobviousness, these inquiries may have relevancy.
Graham v. John Deere, 386 U.S. 1, 17-18 (1966). I turn now to these inquiries.
A. Scope And Content Of The Prior Art
* * *
Three prior United States patents were cited in the '368 file wrapper. * * * Toshiba cites two prior art references which it argues rendered the invention of the '368 patent obvious: The Bingley patent, and an article by Sam H. Kaplan entitled "Theory of Parallax Barriers" published in the July, 1952 issue of the Journal of the Society of Motion Picture and Television Engineers (hereinafter "Kaplan").
* * *
Bingley immediately goes on to note that spacing causes reflection problems when utilized in a tube with a light reflecting layer behind the phosphors, but teaches that these problems can be cured in an index tube, and the brightness advantages of the larger beam realized, if black, light absorbing material is placed in the interstices between the phosphor strips.
* * *
The bulk of the [Kaplan] article's discussion, for the sake of simplicity and clarity, proceeded on the assumption that the sources of radiation (equivalent to the electron guns in television tubes) were dimensionless "points". In reality, "point sources" cannot be used in practical electronic apparatus. Kaplan recognized that the necessary use of finite-area sources in a television tube designed according to his point-source teachings would result in electron beams bombarding phosphors of more than one color, and, at the end of his paper, he disclosed how to adjust the design of a shadow mask tube to prevent this detrimental result. There were, he taught, two alternative geometrical solutions: either the size of the aperture in the shadow mask could be reduced, thus reducing the size of the beam landing areas, or the size of the phosphor dots could be reduced, so that in the area where the beam landing areas overlapped they would not strike any phosphors at all.
* * *
Since, however, the particular dimensions of this tolerance depend, in any given tube, on the details of its design, it cannot be said that the Kaplan Article's suggestion, illustrated in Figure 5, would necessarily represent a tube with effective beam landing areas larger than its phosphor dots.
B. The Level Of Ordinary Skill In The Art
[The typical person having the level of ordinary skill was discussed]
While the number of people involved in color picture tube work probably declined after the crash programs' goals had been accomplished, it is perhaps reasonable to assume that the level of skill and experience remained comparably high. Dr. Herold testified that he himself was familiar with PDF and index, as well as shadow mask tubes and that all three types were widely known among those in the field in 1960.
C. The Subtests
Zenith relies heavily on what it calls the "judgment of history" to show that the '368 tube was an invention of dramatic non-obviousness. This judgment is said to be revealed in the "secondary considerations [such] as commercial success, long felt but unsolved needs, failure of others, etc." which the John Deere court said "might have relevancy" to the inquiry. Graham v. John Deere Co., supra, 383 U.S., at 17-18. Zenith's proof on these issues can be briefly summarized.
(1) Improved results
The quest for increased brightness consistent with acceptable contrast has been an industry goal from the beginning. Continual, but slow, progress had been made up to 1969, when the negative tolerance concept was first practiced commercially in Zenith's "Chromacolor" tube. This tube had a significantly better picture than prior tubes, achieving, for example, increased brightness of 90% and increased contrast of 26% over Zenith's own conventional tubes and representing a sharp improvement in industry achievement generally.
(2) Industry recognition
Both Toshiba's expert in this case, and Toshiba's own engineers, have recognized the merit of the negative tolerance tube. * * *
(3) Commercial success
Tubes incorporating the negative tolerance concept have had a rousing success in the industry. * * *
D. Evaluation
The Patent Act, 35 U.S.C. § 282, provides that:
A patent shall be presumed valid. The burden of establishing invalidity of a patent shall rest on the party asserting it . . ..
In evaluating the evidence adduced,
. . . the proper way to apply the 103 obviousness test to a case like this is to . . . picture the inventor as working in his shop with the prior art references -- which he is presumed to know -- hanging on the walls around him . . ..
Application of Winslow, 365 F.2d 1017, 1020 (CCPA 1966).
Bearing in mind both Toshiba's burden and Zenith's presumptive knowledge of the relevant prior art, I find that both the Bingley patent alone, and the combination of Bingley with Kaplan, contain such disclosures that the subject matter of the '368 patent, as a whole, would have been obvious at the time of the invention to a person having ordinary skill in the art.
(1) Bingley
The hypothetical artisan sitting in a room with walls displaying the state of the art at the time of Bingley would have been familiar with (1) the basic shadow mask tube design, (2) the concept that reflection of ambient light could be substantially reduced, and contrast thereby substantially improved, by spacing the phosphors and placing light absorbing material in the interstices, (3) the concept that substitution of clear glass for gray would improve brightness, though at the cost of some sacrifice in contrast, (4) the concept that the geometric relationship on the screen plane between beam landing area and phosphor area had to provide color purity and white uniformity tolerance to compensate for such things as manufacturing errors, and (5) the teaching that by spacing of the phosphor strips in an index tube and surrounding them with light absorbing material it becomes practicable to have a beam landing area larger than the width of the phosphor.
Had this hypothetical artisan set out to incorporate Bingley's spaced-phosphor-dot, primary teaching into a conventional shadow mask tube, I conclude that he would have been led inexorably to the concept embodied in the '368 patent.
* * *
I hold that the '368 patent was obvious in light of Bingley's primary teaching that contrast could be improved in a shadow mask tube by spacing the phosphors and placing light absorbing material in the interstices.
* * *
(2) Bingley and Kaplan combined.
Alternatively, I find that the subject matter of the '368 patent was obvious to a person of ordinary skill in the art in view of the combination of Bingley with Kaplan. As noted above, the "second solution" of the Kaplan article to the problem of color contamination in a practical shadow mask tube was to separate and reduce the size of phosphor dots without changing the size of the mask apertures. Both Zenith's experts and Mr. Kaplan himself have admitted that this "solution" results in a tube with beam landing areas larger than the phosphor dots. To be sure, Kaplan's paper does speak of theoretical landing areas larger than the phosphor dots and such a condition does not necessarily involve effective landing areas larger than those dots. But this does not deprive the Kaplan paper of relevance in the current context. The relevant inquiry is what would have occurred to a skilled artisan attempting to secure in a shadow mask tube the advantages of using black material between spaced phosphor dots without a concomitant loss of brightness. In this context, an examination of Kaplan's shadow mask tube teaching of theoretical landing areas larger than phosphor dots would have virtually compelled consideration of a comparable relationship between effective landing areas and the phosphor dots and of the utility of such a relationship in providing tolerance without loss of brightness.
Accordingly, I hold that the '368 patent was obvious in view of the combination of Kaplan and Bingley.
(3) The secondary tests
The keystone of Zenith's argument against the foregoing conclusion of obviousness -- that those in the art did not, in fact, see what is alleged to have been obvious to them -- cannot in this case bear the weight which is sought to be placed upon it. Such an argument grows in persuasiveness as the time lengthens during which the prior art relied upon was in the public ken. Where, as here, the prior art (Bingley, issued July 8, 1958) was only available for eight months before the alleged invention was described in a writing, the argument loses its force.
* * *
I do not question that when Zenith finally managed to solve the production problem inherent in utilizing the concept of the '368 patent in a commercial tube, its accomplishment represented a substantial improvement over prior tubes. The Chromacolor tube clearly met with significant commercial success. But the Chromacolor tube and the manufacturing techniques by which it is produced are not the subject of the '368 patent. The Court's inquiry must go to the concept in fact taught by that patent and on this record, the secondary evidence does not convince me that that concept was not obvious after Bingley.
* * *
VII. ZENITH'S CONDUCT BEFORE
THE PATENT OFFICE
Toshiba additionally urges that the '368 patent should be declared unenforceable and attorney's fees awarded because Zenith withheld from the Patent Office citation of the closest prior art of which it was aware - the Bingley patent and the Kaplan article. There is no substantial dispute as to the facts regarding Zenith's prosecution of the application for the '368 patent.
On or about March 5, 1959, J. P. Fiore and S. H. Kaplan, the co-inventors of the '368 patent, submitted a memorandum outlining their invention to Dr. Szegho, the head of Zenith's tube research department, "for discussion and to open a patent docket". A docket was opened, and assigned to one William Klebansky, an employee in the Zenith patent department who had had substantial practical experience in the patent drafting field but was neither a lawyer nor an agent licensed to practice before the patent office. He prepared a draft application which, after having been edited and revised by John J. Pederson, the Assistant Manager of the patent department, was duly filed on April 4, 1961.
In his work on this invention, Klebansky became familiar with certain prior patents, and, after the application had been filed, he recorded these references on what Zenith refers to as its Application Data Form, in accordance with its standard practice. Under the heading "State closest prior art," he listed the Bingley patent and two British patents. Nothing in the record suggests, however, that Klebansky viewed Bingley as rendering the '368 invention obvious or as being more relevant than the combination of Morrell and Evans subsequently cited by the examiner.
On February 26, 1962 the patent examiner issued an Office Action rejecting claims 1-6 and 9 of the application over the prior art references of Morrell and Evans discussed above.
A responsive amendment distinguishing the invention from the art taught by Morrell and Evans was prepared by Klebansky, reviewed by Hugh Drake, a senior attorney in the patent department, and filed on June 4, 1962. Mr. Drake testified that it was not his practice in situations of this kind where he was reviewing someone else's work to closely examine prior art previously uncovered and reviewed.
A notice of allowance was issued on December 23, 1963. Thereafter, Jerry Wright, another attorney in Zenith's patent department, conducted a final review of the application prior to issuance. On the appropriate form, in answer to the question "Is there any known prior art, more pertinent than that cited by the examiner, which has not been made of record?," he replied "No." Like Mr. Drake, Mr. Wright had little specific recollection about what he did in the course of this review twelve years ago. He testified, however, that while his practice was to read through all prior art referred to in the file, he probably relied primarily on a conversation with Sam Kaplan in which Kaplan explained the Bingley disclosure.
Following Wright's review, his supervisor, Mr. Pederson, also reviewed the file. He testified that he did not believe he "could have signed off on that [final review] form without having [Bingley] in front of" him, and without having come to a judgment that the form was properly completed. When Mr. Pederson conducted his initial and final reviews, he also had knowledge of the Kaplan article, in the sense that it had previously been called to his attention. There is no evidence, however, that he reviewed or considered it in connection with his prosecution of the '368 patent application.
After incorporation of the minor amendments prepared by Wright, the patent issued on August 25, 1964.
I have previously held that the disclosure of the '368 patent was obvious in light of Bingley and in light of Bingley combined with the Kaplan article. It does not necessarily follow, however, that Zenith's failure to bring these two concededly known references to the attention of the examiner constituted fraud on the Patent Office. Scott Paper Company v. Fort Howard Paper Company, 432 F.2d 1198 (7th Cir. 1970). One making such a claim has the burden of clearly demonstrating not only objective "materiality" or "relevance" but also "an element of willful, wrongful conduct or wrongful intent." In re Frost Litigation, 398 F. Supp. 1353 (D. Del. 1975)
A patent attorney has no absolute duty to perceive that which one skilled in the art would have perceived if left in a room to study a display of all the prior art. His duty is one of candor and this duty leaves room for the exercise of good faith judgment even if that judgment ultimately is held to have been faulty. As Judge Mansfield has said:
We believe . . . that an applicant for a patent should be accorded the right to exercise good faith judgment in deciding what matters are and are not of sufficient relevance and materiality to require disclosure. Only when he is guilty of fraud, willfulness or recklessness indicating a disregard for his duty of frankness should enforcement of the patent be barred.
Xerox Corp. v. Dennison Mfg. Corp., 322 F. Supp. 963, 968-69 (SD NY 1971).
* * *
Toshiba has proved that Mr. Klebansky and two patent attorneys at Zenith were aware of and considered Bingley at the time of the prosecution of the '368 patent. It has not convinced the Court, however, that the failure to call the examiner's attention to Bingley was the result of anything other than good faith judgments that Bingley was no more relevant than the combination of Morrell and Evans cited by the examiner. Bearing in mind that Bingley did not directly teach negative tolerance in the context of a shadow mask tube, it is understandable that a patent attorney prosecuting the '368 patent with reasonable diligence might focus on Bingley's teaching concerning index tubes while failing to perceive the relevance of the negative tolerance teaching in the shadow mask tube context. Such an attorney could, as I believe the Zenith personnel did, conclude in good faith that Bingley was no more relevant than the examiner's prior art.
The situation with respect to the Kaplan paper is somewhat different but the result must be the same. While the Kaplan paper was known to Pederson, there is no evidence that he reviewed it in connection with the prosecution of the '368 patent and I consider it likely that he simply failed to think of that portion of the paper which the teachings of Bingley cast in a new light. If there were any evidence that the Kaplan paper had been recognized as relevant in the course of the prosecution, as Bingley was, a more difficult question would be posed. But the mere failure to call a given relevant reference to mind in the course of the prosecution does not, on the facts of this case, amount to a wanton disregard of a duty owed to the Patent Office.
Accordingly, I find, "under the 'totality of circumstances,'" Monsanto Co. v. Rohm & Haas Co., supra, 456 F.2d at 600, that the '368 patent was not inequitably obtained, and that no award of attorney's fees against Zenith, as prayed for by Toshiba, would be justified.
* * *
IX. SUMMARY
* * * Claims 1, 2, 3, 5, 6 and 9 are infringed by the Toshiba Blackstripe tube. I have concluded, however, that Claims 1 to 6
and 9 are invalid for obviousness.
J. P. Stevens & Co., Inc. et al v. Lex Tex Ltd., Inc.
747 F2d 1553, 223 USPQ 1089
(Fed. Cir., 1984)
Markey, C.J. Appeal from a final judgment of the District Court for the Southern District of Florida holding infringed, not invalid, and not unenforceable product claims 24, 26-27, and 31 of US Patent No. 3,091,912 ('912 patent), issued on June 4, 1963 to Messrs. Stoddard and Seem, ultimately assigned to Lex Tex Ltd., Inc. (Lex Tex), and now expired. Burlington, Stevens, and Badische (Burlington) appeal those parts of the judgment holding that the claims were not invalid under 35 USC §§ 102 and 103, that Lex Tex purged itself of misuse as of May 31, 1977, and that the claims were not unenforceable due to fraud on the Patent and Trademark Office (PTO). Lex Tex cross-appeals, arguing that its misuse purge occurred earlier than May 31, 1977. We reverse the portion of the final judgment holding that the claims in suit were not unenforceable.
BACKGROUND
A. History of the Litigation
This appeal evolved from litigation starting in 1969, involving at least six patents and fifty accused infringers in the yarn treating industry. In 1974, the district court for the Southern District of Florida, in which the cases had been consolidated, granted summary judgment against Lex Tex on the basis of its misuse of the '912 patent and other patents in licensing. 398 F. Supp. 31, 182 USPQ 523, mod., 541 F2d 1127, 192 USPQ 241 (5th Cir. 1976), cert. denied, 433 US 910, 97 C. Ct. 2976, 53 L Ed 2d 1094 (1977).
Lex Tex sued Burlington, alleging purge of misuse and infringement after the purge. The cases were transferred to the Southern District of Florida, where separate trials were held in this order: (1) without a jury, on the purge issue, resulting in a judgment that purge was achieved as of May 31, 1977; (2) with a jury, on the validity issue under §§ 102 and 103, resulting in a hung jury; (3) without a jury, on the equitable defenses of "fraud on the PTO", laches and estoppel, resulting in a judgment for Lex Tex; (4) with a jury, on the validity issue under 35 USC §§ 102 and 103, resulting in a judgment for Lex Tex; and (5) with a jury, on damages, resulting in an award to Lex Tex of nearly $8.8 million, plus interest.
The judgment on the equitable defenses was accompanied by written findings and conclusions, in which the district court determined that Stoddard and Seem (the '912 applicants) knew of and did not disclose during prosecution (1957 through 1963) British Patent No. 710,082 to Weiss and Italian Patent No. 531,481 to DaGasso (DaGasso). The court further determined, however, that there was no clear and convincing evidence of materiality or intent and, hence, no fraud on the PTO.
* * *
B. The '912 Patent
The '912 patent relates to reprocessing "torque stretch yarns", produced by twisting a multifilament yarn, heat setting the twist, and reverse twisting. Production of torque stretch yarns was the subject of three basic "single heater" patents involved in earlier phases of the litigation.
Torque stretch yarns possess certain properties that the processes claimed in the '912 patent were designed to improve by simultaneously applying heat and tension to the yarn in whatever correlation is required to produce desired effects. Different correlations produce different effects. Process claim 1 reads:
1. The method of processing multifilament "torque stretch yarn" whose stretch characteristics have been set at a given temperature comprising the steps of continuously advancing the yarn, controlling the degree of tension in said travelling yarn in at least one portion of its continuous travel, said tension being below the breaking tension of the structural elements of the yarn, heating said yarn during said portion of its continuous travel to a temperature not substantially greater than said given temperature and correlating the controlled tension and the heat imparted to said yarn with the tensile force necessary to extend the yarn to the limit of its stretch characteristics and the tensile force necessary to extend the yarn to the yield point of the structural elements of the yarn to thereby control the physical characteristics in the reprocessed yarn.
Other process claims specify the correlating criteria, add the step of controlling tension in a second portion of the yarn's travel, or add a process of making torque stretch yarn from multifilament yarn before performing the process set forth in claim 1. The process claims were originally in suit but were withdrawn after the Board opinion in a PTO reissue proceeding, discussed infra, determined that most of them do not avoid the prior art.
The yarns produced by the processes of the '912 patent are asserted to have uniform characteristics throughout their length. Moreover, the tendency of torque stretch yarn randomly to "pigtail", i.e., the tendency of groups of opposed spiraled formations to twist about themselves, is described as lessened. Product claims 24, 26, 27, and 31, the only claims in suit, cover the yarn produced by the foregoing processes, though not couched in product by process terminology. Claim 24 reads:
24. A processed "torque stretch yarn" characterized by uniform reorientation of the structural elements of the yarn components to thereby exhibit substantial uniformity throughout its length in its latent and manifest physical characteristics of shape, luster, cross-sectional area, texture, dimensional stability, torque, resilience, residual shrinkage, stretch, recovery from stretch, and elasticity, said yarn having substantially balanced torque and moderate bulk and a plurality of individual filaments manifesting a plurality of partially spiraled formations of opposed direction which remain separate from one another without tending to twist upon themselves or pigtail when relaxed, said formations being yarn-set.
Claim 26 is identical to claim 24 except that the bulk is "high" instead of "moderate" and the filaments "infrequently tend to . . . pigtail when relaxed". Claim 27 is identical to claim 24 except that the bulk is "high". Claim 31 reads:
31. A reprocessed torque stretch yarn having in at least a portion of its length a filament have substantially regular opposed partially spiraled formation, the spirals of said filament being less than one convolution.
C. Weiss and DaGasso Patents
The Weiss patent teaches that undesirable characteristics of stretch yarn made by a prior twist-heat set-untwist batch method can be lessened by stretching the yarn from 10% to 70% and steaming it in the stretched state for up to 30 minutes. The Weiss patent discloses a batch process, as opposed to the continuous process of the '912 patent. The Weiss patent had counterparts in a number of foreign countries, including the United States (US Patent No. 2,765,505, issued on October 16, 1956).
DeGasso teaches subjecting yarn made by a continuous twist-heat set-untwist method to a second continuous process involving heat treatment followed by a drawing action. The parties agree and the district court found that during heat treatment the yarn is under positive tension.
D. Prosecution History of the '912 Patent
The application that resulted in the '912 patent ('912 application) was filed on April 19, 1957, with process claims 1-23, product claims 24-29, and apparatus claims 30-32, to which a fourth apparatus claim 33 was added by amendment before the examiner's first Office Action. Pursuant to a restriction requirement in the first Office Action, apparatus claims 30-33 became claims 1-4 of Continuation-In-Part (CIP) application 682,724, filed September 9, 1957 and issued on February 19, 1963, as US Patent No. 3,077,724 ('724 patent). The specification of application 682,724 ('724 application) is essentially identical to that of the '912 application.
In the second Office Action on the '912 application, claims 1-23 and 25-29 were indicted as allowable. Only product claim 24 (subsequently issued) was rejected as unpatentable, on US Patent No. 2,411,132 to Hawthorne. Subsequent office actions involved rejections of added product claim 37 (subsequently issued as claim 31) on US Patent No. 2,564,245 to Billion and, later, on US Patent No. 2,909,028 to Comer et al., and of added product claim 35 (subsequently issued claim 30) on US Patent No. 2,211,211 to Finlayson in view of Belgian Patent No. 545,983 to Chavanoz.
E. Reissue Proceeding
After trial of the purge issue, but before the first trial on the validity issue, the district court issued an order: requiring Lex Tex to file application for reissue of the '912 patent in the PTO; permitting Lex Tex to modify the reissue oath to preserve its position in the litigation; instructing the PTO "to use the expedited new reissue procedure"; and permitting defendants to participate in the PTO proceedings.
The district court later: ordered the parties not to raise at trial any patentability issue which could have been but was not presented in the reissue proceeding; reiterated its position that the PTO was to serve essentially as a Special Master on validity; and stated that the examiner's Report was to be treated in the trial of the validity issue as prima facie evidence of the facts it contained. The court said the reissue result was not needed for any conclusion on fraud because "the fraud or misrepresentation issue is a legal not technical one, and is equally within the expertise of the Court".
The reissue examiner rejected all but seven claims in view of Weiss or DeGasso. Product claims 24-28 and 31 were rejected under 25 USC § 103 on either Weiss or DeGasso.
ISSUE
Whether the claims in suit are unenforceable because of inequitable conduct before the PTO.
OPINION
A. "Inequitable Conduct"
"Common law fraud" requires (1) misrepresentation of a material fact, (2) intent to deceive or a state of mind so reckless respecting consequences as to be the equivalent of intent (scienter), (3) justifiable reliance on the misrepresentation by the party deceived, inducing him to act thereon, and (4) injury to the party deceived, resulting from reliance on the misrepresentation. Norton v. Curtiss, 57 CCPA 1384, 433 F2d 779, 793, 167 USPQ 532, 543 (CCPA 1970).
Conduct before the PTO that may render a patent unenforceable is broader than "common law fraud". Norton v. Curtiss, 433 F2d at 793, 167 USPQ at 543-44. It includes failure to disclose material information, or submission of false material information, with an intent to mislead. Because the "fraud" label can be confused with other forms of conduct, this opinion avoids that label and uses "inequitable conduct" as a more accurate description of the proscribed activity, it being understood that the term encompasses affirmative acts of commission, e.g., submission of false information, as well as omission, e.g., failure to disclose material information.
"Inequitable conduct" requires proof by clear and convincing evidence of a threshold degree of materiality of the nondisclosed or false information. It has been indicated that the threshold can be established by any of four tests: (1) objective "but for"; (2) subjective "but for"; (3) "but it may have been"; and (4) PTO Rule 1.56(a), i.e., whether there is a substantial likelihood that a reasonable examiner would have considered the omitted reference or false information important in deciding whether to allow the application to issue as a patent. American Hoist, 725 F2d at 1362, 220 USPQ at 772-73. The PTO standard is the appropriate starting point because it is the broadest and because it most closely aligns with how one ought to conduct business with the PTO. American Hoist, 725 F2d at 1363, 220 USPQ at 773. It served as the focus of inquiry in Hycor Corp. v. The Schleuter Co., 740 F2d 1529, 1539, 222 USPQ 553, 560 (Fed. Cir. 1984), and in Driscoll v. Cebalo, 731 F2d 878, 884, 221 USPQ 745, 750 (Fed. Cir. 1984). Under the standard, a reference that would have been merely cumulative is not material. Kimberly-Clark Corp. v. Johnson & Johnson, No. 83-1066, sl. op. at 35-38 (Fed. Cir. Oct. 9, 1984).
"Inequitable conduct" also requires proof of a threshold intent. That intent need not be proven with direct evidence. Hycor, 740 F2d at 1540, 222 USPQ at 561. It may be proven by showing acts the natural consequences of which are presumably intended by the actor. American Hoist, 725 F2d at 1363, 220 USPQ at 773; Kansas Jack, Inc. v. Kuhn, 719 F2d 1144, 1151, 219 USPQ 857, 862 (Fed. Cir. 1983). Proof of deliberate scheming is not needed; gross negligence is sufficient. Hycor, 740 F2d at 1540, 222 USPQ at 561. Gross negligence is present when the actor, judged as a reasonable person in his position, should have known of the materiality of a withheld reference. Driscoll v. Cebalo, 731 F2d at 885, 221 USPQ at 751; Kansas Jack, Inc. v. Kuhn, 719 F2d at 1152, 219 USPQ at 862. On the other hand, simple negligence, oversight, or an erroneous judgment made in good faith, is insufficient. Orthopedic Equip. Co. v. All Orthopedic Appliances, 707 F2d 1376, 1383, 217 USPQ 1281, 1286 (Fed. Cir. 1983).
Once the thresholds of materiality and intent are established, the court must balance them and determine as a matter of law whether the scales tilt to a conclusion that inequitable conduct occurred. American Hoist, 725 F2d at 1364, 220 USPQ at 774. If the court reaches that conclusion, it must hold that the patent claims at issue are unenforceable.
Whether the holding should be one of invalidity or unenforceability has had no practical significance in cases thus far presented to this court and has not therefore been addressed. This court has accepted the terminology employed by the district court. Compare, Connell v. Sears, Roebuck & Co., 722 F2d 1542, 220 USPQ 193 (Fed. Cir. 1983) (upholding district court determination that the patent was not unenforceable for fraud) with Rohm and Hass Co. v. Crystal Chemical, Co., 722 F2d 1556, 220 USPQ 289 (Fed. Cir. 1983), cert. denied, 469 US 851, 83 L Ed 2d 107, 105 S Ct 172 (1984) (reversing determination that the patent was not invalid for fraud).
The Supreme Court has discussed inequitable conduct, as a defense to a claim of patent infringement, in terms of enforceability, see, e.g., Precision Instrument Manufacturing Co. v. Automotive Maintenance Mach. Co., 324 US 806, 814-16, 89 LEd 1381, 65 S Ct 993 (1945). In Walker Process Equip., Inc. v. Food Machinery & Chemical Corp., 382 US 172, 176, 15 LEd 2d 247, 86 S Ct 347 (1965), in addressing a claim for damages under § 4 of the Clayton Act based, inter alia, on alleged willfully fraudulent procurement of a patent, the Court spoke of "invalidity". Some courts have extrapolated from Walker Processing two categories of defenses: (1) "fraud", rendering the patent invalid and (2) "other inequitable conduct", rendering the patent unenforceable. See, e.g., Timely Products Corp. v. Arron, 523 F2d 288, 297, 187 USPQ 257, 264 (2d Cir. 1975); In re Multidistrict Litigation Involving Frost Patent, 398 F. Supp. 1353, 1367-68, 185 USPQ 729, 740 (D. Del. 1975), aff'd in part, 540 F2d 601, 191 USPQ 241 (3rd Cir. 1967).
In Timely Products, it was said the claims can be unenforceable due to "unclean hands" without satisfaction of the materiality requirement, and that claims can be invalidated due to fraud when the materiality requirement is satisfied. That categorization is inconsistent with this court's view that materiality is a necessary ingredient of any inequitable conduct.
Focusing on the effect of inequitable conduct as a defense, we conclude that it results in unenforceability. The Patent Act of 1952 states in 35 USC § 282 the defenses to a patent infringement suit:
(1) Noninfringement, absence of liability for infringement, or unenforceability.
(2) Invalidity of the patent or any claim in suit "on the ground specified in part II of this title as a condition for patentability" ["novelty and loss of right" under § 102 and "non- obvious subject matter" under § 103].
(3) Invalidity under sections 112 or 251 of this title.
(4) Any fact or other act made a defense by this title.
Paragraph (1) includes "equitable defenses such as laches, estoppel and unclean hands". P. J. Federico, "Commentary on The New Act", 35 USCA at 55. Because at the time the Patent Act was enacted Supreme Court cases had treated inequitable conduct as an "unclean hands" type defense, see, e.g., Precision Instrument, cf., Driscoll v. Cebalo, 731 F2d at 884, 221 USPQ at 750-51, the defense fits best in the "unenforceability" phrase of paragraph (1). That approach accords, also, with the specification of particular bases for invalidity in paragraphs (2) and (3) in § 282.
The CCPA decision in Norton v. Curtiss, 433 F2d at 793, 167 USPQ at 543 supports the view that inequitable conduct results in unenforceability:
In suits for patent infringement, unenforceability, as well as noninfringement or invalidity under the patent laws, is a statutory defense. See 35 USC § 282(1). We have noticed that unenforceability due to fraudulent procurement is a rather common defense. In such circumstances, we find that the courts are generally applying equitable principles in evaluating the charges of misconduct alleged to be fraudulent. Thus, in suits involving patents, today, the concept of "fraud" on the Patent Office (at least when a patentee's conduct pertaining to the relative merits of his invention is concerned) encompasses not only that which we have termed earlier "technical" [i.e., common law] fraud but also includes a wider range of "inequitable" conduct found to justify holding a patent unenforceable. Accord, American Optical Corp. v. United States, 179 USPQ 682, 684 (Ct. Cl. Tr. Div. 1973).
Once a court concludes that inequitable conduct occurred, all the claims -- not just the particular claims to which the inequitable conduct is directly connected -- are unforceable. See generally, cases collected in 4 Chisum, Patents, Par. 19.03 [6] at 19-85 n.10 (1984). Inequitable conduct "goes to the patent right as a whole, independently of particular claims". In re Clark, 522 F2d 623, 626, 187 USPQ 209, 212 (CCPA 1975). As stated in Gemveto Jewelry Co. v. Lambert Bros., Inc., 542 F. Supp. 933, 943, 216 USPQ 976, 984 (SDNY 1982):
The gravamen of the fraud defense is that the patentee has failed to discharge his duty of dealing with the examiner in a manner free from the taint of 'fraud or other inequitable conduct'. If such conduct is established in connection with the prosecution of a patent, the fact that the lack of candor did not directly affect all the claims in the patent has never been the governing principle. It is the inequitable conduct that generates the unenforceability of the patent and we cannot think of any cases where a patentee partially escaped the consequences of his wrongful acts by arguing that he only committed acts of omission or commission with respect to a limited number of claims. It is an all or nothing proposition.
If affected claims were considered invalid, rather than unenforceable, the entire patent would nonetheless be affected. Section 288 of Title 35 states:
Whenever, without deceptive intention, a claim of a patent is invalid, an action may be maintained for the infringement of a claim of the patent which may be valid.
That provision was intended to eliminate the "common law rule that if a patent is invalid in part it is completely invalid". Federico, supra, 35 USCA at 48. The "without deceptive intention" phrase in § 288 reveals that the common law rule is not eliminated "when deception or fraud is involved". Id. See, Chromalloy American Corp. v. Alloy Surfaces Co., Inc., 339 F. Supp. 859, 875, 173 USPQ 295, 306 (D. Del. 1972) ("§ 288 by its express terms rules out infringement actions to enforce a patent in which any one of its claims is invalid by reason of fraud or deception"). Accord, Kearney & Trecker Corp. v. Giddings & Lewis, Inc., 452 F2d 579, 596, 171 USPQ 650, 664 (7th Cir. 1971), cert. denied. 405 US 1066, 31 LEd 2d 796, 92 SCt 1500, 173 USPQ 385 (1972); Reynolds Metal Co. v. Continental Group, Inc., 525 F. Supp. 950, 971, 210 USPQ 911, 929 (N.D. Ill. 1981).
In this case, our analysis focuses on the process claims. We conclude that inequitable conduct occurred with respect to those claims and that the product claims in suit are therefore unenforceable.
B. Standard of Review
Materiality and intent are factual issues subject to the clearly erroneous standard of review. See, e.g., Hycor, 740 F2d at 1539-40, 222 USPQ at 557, American Hoist, 725 F2d at 1361, 220 USPQ at 772. Thus, this court must affirm findings on materiality and intent unless it is left with a definite and firm conviction that error has occurred. See, e.g., Raytheon Co. v. Roper Corp., 724 F2d 951, 956, 220 USPQ 592, 596 (Fed. Cir.), cert. denied, 469 US 835, 83 LEd 2d 69, 105 SCt 127 (1984). If the hthreshold of materiality and intent is crossed, we must determine, as a matter of law, whether inequitable conduct occurred. American Hoist, 725 F2d at 1364, 220 USPQ at 774.
C. Materiality of Weiss and DaGasso
The district court, essentially ignoring th PTO reissue proceeding, found that "the Weiss and DaGasso patents are either not as material as other art cited by the PTO or there is [sic] competent conflicting opinions by reasonable experts such that the failure to cite Weiss and DaGasso cannot constitute intentional deception or gross negligence." It found that the '912 invention differed from those of Weiss and DaGasso, and stated that "this difference indicates that the inventions involved are significantly different, and the claim language that the patentees have been consistently relying on to distinguish their invention over Weiss and DaGasso has some genuine technological base."
Error resulted from a failure to give primary consideration to events involved in the PTO reissue proceeding. As stated above, the starting point for determining materiality is the PTO standard, i.e., a substantial likelihood that a reasonable examiner would have considered the nondisclosed information important in deciding whether to allow the application to issue as a patent. Consequently, the result of a PTO proceeding that assesses patentability in light of information not originally disclosed is of strong probative value in determining whether the nondisclosed information would have been material.
The rejections of the process claims in reliance on Weiss and DaGasso in the reissue proceeding indicate that those references were clearly important to the PTO in deciding that most of the process claims were unpatentable. Those references would have been equally important in the original prosecution of the '912 application. That importance, alone, establishes the materiality of those references -- as long as the rejections were themselves reasonable. The latter condition, which is necessary to a finding under the PTO standard of materiality that a "reasonable examiner" would have considered the references important, is satisfied here. The process claims include the key step of subjecting a torque stretch yarn to a selected tension during heat treatment. That step is taught by Weiss and DaGasso, rendering them more material, or "important" under the PTO standard, then any of the references cited in the original prosecution or by the district court. It was clearly reasonable, therefore, for the examiner to make, and the Board for the most part to sustain, rejections of the process claims on Weiss and DaGasso.
The district court appears to have been persuaded by Lex Tex' argument that the process claimed in the '912 patent differed significantly from the processes of Weiss and DaGasso. Its process, says Lex Tex, involves "controlling" the tension by positively driven feed rolls whereby the tension can be increased or decreased. Though Weiss and DaGasso involve means to increase tension, says Lex Tex, they do not include feed rolls that can increase or decrease it, and the invention described in the '912 specification therefore differs from that described in the references. Lex Tex argues that claims are interpreted in light of the specification and that the "control" language of the claims must be therefore limited to means that can increase or decrease tension, i.e., positively driven feed rolls. We disagree. Claims should be construed in light of the specification, see e.g., Fromson v. Advance Offset Plate, Inc., 720 F2d 1565, 1569, 219 USPQ 1137, 1140 (Fed. Cir. 1983), but that does not mean that claims incorporate all disclosures in the specification. Id. at 1570, 219 USPQ at 1141. Moreover, nothing in the '912 specification requires that the process claims be limited to control means that can either increase or decrease tension (such as positively driven feed rolls). The specification discloses six general embodiments of the process invention, two that involve reducing tension and four that involve increasing tension after the torque stretch yarn is produced. The "controlling" limitation of the process claims reads on selecting a tension and applying heat -- whether the tension be high or low. It does not require, whether or not it is read in light of the specification, that the controlling means be capable of selectively accomplishing either an increase or decrease in tension. Indeed, the specification describes an option without feed rolls for simultaneous application of heat and tension.
The district court, in finding Weiss less relevant than Billion, noted the continuous nature of the '912 process in comparison with Weiss' batch process. That Weiss involved a batch process does not require, however, a finding that Weiss was ot material, or that it was less material than Billion. The difference between continuous and batch processes is merely one difference to consider in determining whether the claimed invention would have been nonobvious. That difference does not undermine the importance of Weiss' teaching of a simultaneous heat-tension treatment, an important aspect of the claims.
The district court also noted there was evidence that Finlayson, together with Chavanoz, made a better reference than Weiss or DaGasso, and that Chavanoz is a better reference than DaGasso. Noting the existence of such evidence does not provide a finding subject to review. Moreover, Finlayson does not teach the key step of simultaneous tension and heat taught By Weiss, and Chavanoz refers to "minimum" tension and in a sense teaches away from the '912 invention.
The district court also noted the possibilities that the primary examiner of the '912 patent: (1) knew of Weiss because he was also the primary examiner of the United States counterpart to Weiss and conducted prior art searches in classes that included Weiss; and (2) knew of DaGasso because he was also the primary examiner of the '724 application, in which DaGasso was cited. If the primary examiner actually knew about the Weiss and DaGasso references when examining the '912 application, that knowledge might preclude a finding of materiality. Cf., Environmental Designs v. Union Oil Co. of Calif., 713 F2d 693, 698, 218 USPQ 865, 870 (Fed. Cir. 1983), cert. denied, 464 US 1043, 104 SCt 709, 79 LEd 2d 173, 224 USPQ 520 (1984) (failure to submit a page from textbook not fraud because it was already known and of record before examiner); Orthopedic Equipment Co. v. All Orthopedic Appliances, 707 F2d 1376, 1383, 217 USPQ 1281, 1286 (Fed. Cir. 1983) (nondisclosure not material because the examiner independently ascertained the existence of the undisclosed prior art). However, the district court did not find actual knowledge by the primary examiner -- it merely noted possibilities and, where inequitable conduct is at issue, mere possibilities are insufficient. As stated in Driscoll v. Cebalo, 731 F2d at 885, 221 USPQ at 751: "It cannot be presumed, where fraud or other egregious conduct is alleged, that the PTO considered prior art of particular relevance if it was not cited."
There is no evidence, and Lex Tex does not argue on appeal, that the primary examiner actually recalled the critical aspects of the US Weiss or DaGasso patents. Nor is there evidence that the examiner principally responsible for examining the application, as opposed to the primary examiner, had knowledge of the references.
D. Intent
The district court found "no clear and convincing evidence that the applicants or their attorney, believing Weiss to be relevant, intentionally withheld it from the PTO or that they acted with recklessness or gross negligence", and it found "no evidence of deceptive intent with respect to the failure to cite DeGasso in the original application". In the latter regard, said the district court, "the evidence does show . . . that [applicants] believed that the claim limitations in the '912 were clearly and patentably distinguished from DeGasso".
Those findings must be determined to have been clearly erroneous. As stated above, threshold intent is established where an actor in an applicant's position would have reasonably known that the reference was material, e.g., that the reference would have been important to a reasonable examiner in deciding whether to allow the claims. Here, where none of the prior art cited during prosecution taught a key element of the claimed process invention, and where both Weiss and DaGasso taught that key element, the applicants for the '912 patent should have known that those references would be important to the PTO, especially in light of certain undisputed facts: (1) claim 4 of the '724 application was rejected on DaGasso; (2) licenses were taken under Weiss and foreign counterparts to Weiss; and (3) corresponding foreign applications were rejected on Weiss.
1. Rejection of claim 4
of the '724 application
Original claim 4 of the '724 application and claim 30 of the '912 patent are similar. Each require treatment of torque stretch yarn with simultaneous heat and tension. Claim 4 reads (the underlined matter was added and the bracketed matter deleted by amendment):
Apparatus for processing textile yarns comprising means for continuously advancing said yarn from a source of supply, means for continuously collecting said advancing yarn, means to heat and false twist said advancing yarn in one portion of its continuous travel,adjustable means to apply tension to the advancing yarn in said one portion of its travel, and means to regulate the heater means in correlation with the applied tensionto produce "torque stretch yarn", [and] means intermediate said second and third mentioned means to uniformly heat said continuously advancing "torque stretch yarn" at a [controlled] selected tension in a subsequent portion of its continuous travel, and adjusting means for regulating both the last-mentioned heating means and the selected tension to control the heat and tension in accordance with the characteristics of the yarn.
Issued claim 30 of the '912 patent reads (the underlined matter was added by amendment):
A method of processing yarn comprising the steps of unwinding said yarn from a supply package, continuously processing said yarn to form 'torque stretch yarn', thereaftercontinuously passing said yarn through at least one tensioning apparatus, continuously heating said yarn while under the control of said tensioning apparatus, then continuously passing said torque stretch yarn through a second tensioning apparatus, and continuously winding said processed yarn into a take-up package.
Claim 4 of the '724 application (in partially amended form) was rejected on October 13, 1959, on DaGasso in view of US Patent No. 3,869,312 to Van Dijk. Concerning the rejection, applicant Seem stated in internal correspondence that DaGasso "does disclose our can-can [double heater] type of apparatus to continuously produce and post treat torque stretch yarn". Though applicants further amended the claim in an effort to avoid the prior art, the claim was again rejected, on November 7, 1960, on the same references. The claim was then cancelled in favor of a new claim 5, which was subsequently amended and issued.
Fully aware of DaGasso and its materiality in relation to the application that resulted in the '724 patent, applicants should have known of its materiality in relation to the '912 application. Applicants nonetheless elected not to disclose DaGasso to the examiner of the latter application.
Indeed, applicants argued that claims 35 and 36 of the '912 application were patentable over a single heater patent of their own because the '912 invention contemplates the additional step of heating and tensioning false twist yarn. That argument implies that the prior art does not teach a heating/ tensioning step, yet applicants knew that DaGasso did teach that very step. Applicants also urged, in attempting to distinguish a rejection on Finlayson in view of Chavanoz, that those patents do not teach the application of heat and two degrees of tension. But applicants knew that that teaching is also present in DaGasso.
2. Licensing the British Weiss patent
In March, 1957, Universal Winding Company, later Leesona Corporation (Universal), the then owner of the '912 application, introduced a machine for reprocessing torque stretch yarn. Heberlein, the owner of the Weiss patent, informed Universal that sale of the machine would be a contributory infringement of the Weiss process claims. Universal took a license under foreign counterparts to the Weiss patent. Fluflon, Ltd., a British company owned in part by Stoddard and Seem, also took a license under Weiss.
The district court discounted the effect of the Universal license, viewing it as merely an "economic decision based upon a desire to avoid costly litigation over the Weiss patent since it might be considered a dominating patent under the patent laws in Europe". There is no evidence, stated the district court, that such "business judgment" amounted to gross negligence or recklessness.
We agree that taking as license may have been an exercise in good business judgment. We find the consideration irrelevant, however, to a determination of whether the failure to disclose the licensed patent, Weiss, to the PTO during prosecution of the '912 application, was grossly negligent or otherwise "intentional".
The license agreements are virtually conclusive evidence that the applicants should have known of the materiality of Weiss. Applicants may have believed that the '912 process was patentable over Weiss, but that they took a license under it in connection with the sale of their machine that performed the '912 process evinces knowledge of Weiss' importance. A failure to disclose Weiss in view of that knowledge constitutes reckless disregard of the duty to disclose.
3. Rejections On Weiss Of Foreign
Corresponding Applications
Japanese, German and British applications corresponding to the '912 applications were filed during pendency of the latter. The Japanese and German applications were rejected in view of Weiss, and the Japanese application was eventually abandoned. The British counterpart was allowed despite the citation of Weiss.
The district court stated that "while the applicants were aware of the Weiss patent, there was no recognition on their part of its materiality or relevance [in the United States] because of the differences in the patent laws of these foreign countries as to disclosure, claims practice, forms of applications and standards of patentability''.
Differences in foreign patent laws may in other contexts be important. They are not relevant in determining intent underlying a failure to disclose to the PTO. The controlling factor in that determination is found in the nondisclosed information itself. Whether the '912 applicants can be viewed as meeting the threshold of intent to mislead the PTO has nothing to do with rules governing disclosure, claims, applications and patentability in foreign lands. Whether Weiss should have been disclosed under those rules in those lands has no controlling effect on whether it should have been disclosed to the PTO here. That Weiss was cited and claims were rejected on Weiss in applications corresponding to the '912 application should have caused a reasonable applicant to have so recognized its materiality in the PTO as to have led to its disclosure. No requirement exists to disclose to the PTO all references cited against foreign corresponding applications; yet in the present circumstances the failure to cite Weiss in light of its citation in foreign lands is strong evidence of intent to mislead.
4. Lex Tex' Argument Re Intent
Citation of DaGasso in the prosecution of the '724 application, licensing under Weiss, and citation of Weiss in rejection of foreign counterparts of the '912 application, evince a degree of awareness of the importance (materiality) of the references sufficient to compel a conclusion that the district court's no-intent finding was clearly erroneous.
Lex Tex argues that if its narrow interpretation of the claimed "control" means was incorrect, the '912 applicants possessed a good faith belief in that interpretation, and because that interpretation renders Weiss and DaGasso immaterial there can be no finding of the necessary intent.
There is no evidence, however, that the '912 applicants actually possessed a good faith belief in the argued claim
interpretation. Testimony of the applicants would have been helpful on that issue, but applicants passed away before trial
without relevant depositions having been taken.
Moreover, applicants should have known that, during prosecution, claims are given their broadest reasonable interpretation in light of the specification. In re Yamamoto, 740 F2d 1569, 1571, 222 USPQ 934, 936 (Fed. Cir. 1984); In re Sneed, 710 F2d 1544, 1548, 218 USPQ 385, 388 (Fed. Cir. 1983); In re Marosi, 710 F2d 799, 802, 218 USPQ 289, 292 (Fed. Cir. 1983); In re Heck, 699 F2d 1331, 1332, 216 USPQ 1038, 1039 (Fed. Cir. 1983); In re Prater and Wei, 56 CCPA 1381, 415 F2d 1393, 1404-05, 162 USPQ 541, 550-51 (CCPA 1969); In re Kebrich, 40 CCPA 780, 201 F2d 951, 954, 96 USPQ 411, 414 (CCPA 1953); Ex parte De Grunigan, 132 USPQ 152, 156 (PTO Bd. App. 1958). Hence, applicants' narrow claim interpretation, if it existed, would have been unreasonable.
In all events, prosecution of the '724 application indicates that the '912 applicants did not possess the now-asserted belief in a narrow claim interpretation. Claim 5 of the '724 application, and claims dependent thereon, were allowed only after they were amended to change the "tension controlling means" to "tension controlling means including positively driven feed rolls between said heating device and said false-twist device". Applicants argued:
It is submitted that claim 5 is patentable over the Italian patent [DaGasso]. The claim clearly defines the tension-controlling means as including positively-dliven feed rolls between the heater and the false-twister whereby the second tensioning means is adjustable independently of said first-mentioned means.
By that amendment, applicants conceded that "tension controlling means" does not impliedly include "positively driven feed rolls".
Further, a good faith belief that claims should be narrowly construed to avoid uncited prior art will not necessarily or always preclude a finding of recklessness or gross negligence in failing to cite that art. The references may be important in assessing patentability, whatever may be the applicant's view. In Driscoll v. Cebalo, 731 F2d 878, 221 USPQ 745 (Fed. Cir. 1984), applicant cancelled a claim he believed was anticipated by a Canadian reference, replacing it with a claim that he believed avoided that reference. This court refused to give controlling effect to applicant's subjective determination that the new claim avoided the art. A finding of intent was reached in Driscoll, notwithstanding contemporaneous evidence that the applicant there did believe the new claim avoided the art. Here, where there is no evidence of good faith belief in the narrow claim interpretation, and there is contrary evidence, a finding is compelled that the intent element of inequitable conduct is clearly present.
5. Balancing Materiality and Intent
A high degree of materiality was present here. The PTO standard was easily met by the close relationship of the Weiss and DaGasso disclosures to the claims of the '912 patent, as reflected in the citation of Weiss and DaGasso by the reissue examiner.
There was also a relatively high degree of intent. If there were no deliberate scheming, there was clearly reckless or grossly negligent activity. Applicants clearly should have known of the materiality of Weiss and DeGasso, especially after they took licenses under Weiss and its counterparts, had their foreign applications rejected on Weiss, and had similar claims in their virtually identical CIP application rejected on DaGasso.
Balancing materiality and intent, we are compelled to conclude that "inequitable conduct" occurred. Accordingly, all claims of the patent must be held unenforceable.
CONCLUSION
That portion of the final judgment holding the claims in suit not unenforceable is reversed. The remaining portions of the judgment are vacated as now moot.
Reversed in Part; Vacated in Part
American Hoist & Derrick Co. v. Sowa & Sons, Inc.
725 F2d 1350; 220 USPQ 763
(Fed. Cir., 1984)
Rich, J. American Hoist and Derrick Co. (AmHoist) appeals from the unpublished decision of the United States District Court for the District of Oregon holding for Sowa & Sons, Inc.(Sowa) on AmHoist's suit for infringement of claims 3, 5, and 7 of its Shahan US Patent No.4,079,584, issued March 21, 1978, for a"Heavy Duty Shackle." After a two and one-half day jury trial, the jury rendered a verdict for defendant by answering written interrogatories as to two legal issues, stating that each claim in suit was invalid for obviousness and for fraud in the prosecution of those claims in the United States Patent and Trademark Office (PTO).
In three separate opinions, the district court held (1) that it would adopt the jury's determination of obviousness, (2) that there was sufficient evidence to support the jury's"findings" of fraud, and, while the degree of fraud was insufficient to support Sowa's unfair competition and antitrust counterclaims,that it was sufficient to render this an exceptional case under 35 USC 285 justifying an award to Sowa of its attorney fees, and (3) that Sowa was entitled to $50,000 in attorney fees rather than the $90,367.55 requested.
Sowa cross-appeals from the decision of the court granting AmHoist's motion for summary judgment on Sowa's unfair competition and antitrust counterclaims.
Because of erroneous jury instructions, and because there exist disputed issues of fact, we vacate and remand for a new trial. However, we reverse the trial court's determination that the jury could properly have found that no damages were proved, and we affirm in part and reverse in part the decision dismissing Sowa's antitrust and unfair competition counterclaims.
Background
As described in the "Abstract" of the patent in suit, the invention relates to:
A heavy duty shackle for use under great loads, such as in anchor lines. The shackle is formed from a cylindrical bar rod by shaping the ends to a reduced diameter, and forging the central portion into a flattened shape having the crosssection of a wide shallow U shape. The bottom surface of the central section is in the form of a portion of a circular cylinder. The ends of the bar are flattened and a central opening is forged and based for a pin. The formed bar is then bent in the form of a bow to provide an eye for the shackle, with two parallel ears spaced a selected distance apart.
* * *
[The court reviewed the drawings and specific claims at issue]
Defending against AmHoist's suit for infringement of these claims, Sowa denied infringement and counterclaimed for a declaratory judgment of invalidity. Sowa later brought to AmHoist's attention what it deemed new prior art, leading AmHoist to file an application for reissue of its patent. Sowa then amended its answer and counterclaimed for damages for unfair competition and for violation of federal antitrust law, asserting that AmHoist committed fraud in the PTO by not disclosing to the examiner the prior art that Sowa discovered.
Sowa stipulated in a pretrial order that its products infringed the claims in suit, Sowa's counterclaims were severed, and the issue of validity was tried to a jury. The jury returned its answers to two written interrogatories on ultimate legal issues, cf. Fed. R. Civ. P. 49(b), stating that each claim was invalid under 35 USC 103 and for "fraud on the Patent Office."
Shortly after the verdict, the PTO completed examination of the reissue application, allowing claims 1, 2, 5, 6, and 7 without change in the first Office Action. After AmHoist amended claim 3 to clarify the meaning of "diameter," and swore that the mistake in claim 3 occurred without deceptive intent, it too was allowed, as was claim 4 which had been objected to as depending from a rejected claim.
The district court stated:
Because the issue of obviousness under 35 USC § 103 is one of law rather than of fact, it is encumbent [sic] upon the court rather than the jury to make the final determination. Guided by the jury's findings and by the evidence, I hold the Shahan patent to be invalid under § 103.
In reaching its conclusion, the court first noted that because the PTO was not in possession of all "relevant prior art" the 35 USC 282 presumption of validity "disappears" because "the court is not entitled to rely upon the patent office expertise." After setting forth the scope and content of the prior art and stating that testimony of several experts indicated that a person of ordinary skill in the art of heavy-duty shackle design is
"a skilled engineer capable of determining stress requirements, material, and shape designs and would have a high familiarity
with the design, manufacturing, and performance characteristics of various types of rope fittings and fixtures,"
the court concluded a two-page opinion on validity as follows:
The jury determined that the subject matter of the Shahan patent would have been obvious to one of ordinary skill in the art at the time of the claimed invention. I agree. The only difference other than size between the Shahan design and other cited, prior art is the presence of rein portions of either rectangular (Crosby-Laughlin and Nicro/Fico) or ellipsoidal (Schaefer Marine), rather than circular cross-section. Such circular cross-section design is not new, however, and can be found on the old and well-known anchor shackle design.
In another opinion, the court determined this to be an "exceptional case" within 35 USC 285, although "the degree of fraud was insufficient to support defendant's unfair competition claim":
A jury determined that AmHoist's patent was invalid. On each claim of the patent in issue, the jury determined that AmHoist committed fraud on the Patent Office. The fact that a reissue application was allowed by a Patent Office examiner makes this a harder case, but does not remove the finding of fraud by the jury.
* * *
I find that plaintiff's actions taken to procure its Shahan patent were well within the range of activities sufficient to find the ensuing patent infringement case "exceptional" within the meaning of § 285. A jury properly concluded that AmHoist committed fraud on the Patent Office. Even assuming that AmHoist's conduct was short of fraud, I would find that it was in excess of simple negligence so as to support a finding of "exceptional."
I further find that an award of attorney's fees in this case is appropriate. Defendant is a smaller company than plaintiff and enjoyed substantially less of the market share. The amount of potential damages for the alleged infringement was small -- a factor which might have counseled Sowa to not undertake the expensive defense of this case. Sowa's success in invalidating an unlawfully obtained patent accrues not only to its interests but also to the public interest. Under these circumstances, I find that it would be unjust for Sowa to bear the expense of its counsel's fees in successfully pursuing this case.
In its final opinion, the district court entered an award of $50,000 in attorney fees, but"only for work on the patent claims and not on the counterclaims [Sowa] pursued." Sowa had requested $90,367.55, but the court believed that to be "too high considering all relevant factors."
* * *
[The decision discussed the parties' respective arguments on appeal]
While we regret having to order a new trial before an already overburdened district court, a new trial is mandated, and this case is a good illustration of the difficulties inherent,generally, in the use of juries to resolve patent disputes and, specifically, in allowing the use in such cases of general verdict forms unaccompanied by interrogatories on the controlling facts.
* * *
[The verdict was reproduced in full in the decision]
Before the jurors retired to reach this verdict, the trial court read to them twenty-six pages of instructions. AmHoist urges reversal on the ground that several of those instructions were erroneous. On consideration of those instructions, in light of all the instructions given, we are constrained to agree.
* * *
[The decision discussed the instruction on burden of proof]
That instruction was erroneous in two respects. First, it misassigned the burden of proof. The final sentence of 35 USC 282 mandates that "The burden of establishing invalidity of a patent or any claim thereof shall rest on the party asserting such invalidity." Precedent adopted by this court pursuant to South Corp. v. United States, 690 F2d 1368, 1369, 215 USPQ 657,658 (Fed. Cir. 1982), declares that burden to be permanent, emphasizing that § 282
* * * mandates not only a presumption shifting the burden of going forward in a purely procedural sense, but also places the burden of persuasion on the party who asserts that the patent is invalid. To speak of the presumption as "no longer attaching" is to risk a concomitant, and unspoken, assumption that the burden of persuasion is thereafter no longer upon him who asserts invalidity. That view is contrary to the meaning of § 282, for the burden of persuasion is and remains always upon the party asserting invalidity, whether the most pertinent prior art was or was not considered by the examiner.
Solder Removal Co. v. US International Trade Commission, 582 F2d 628, 632-33,199 USPQ129, 133 (CCPA 1978) (footnotes omit ed). SSIH Equipment, S.A. v. US International Trade Comm., 718 F2d 365, 375, 218 USPQ 678, 687 (1983). On this point we, like the CCPA, disagree with the Ninth Circuit position stated in Tveter, supra, which was that because the examiner did not have certain prior art patents before him when examining the application for the patent in suit, which patents were closer art than he cited, the burden of proving non- obviousness was on the patentee. Our position is that this is never so because it would be contrary to the statute.
* * *
The second and more general error in the above jury instruction was that it failed to ex-plain accurately the "presumption of validity," which is not surprising. The prevailing confusion in the cases over its meaning and effect has been engendered by assertions that under some circumstances the presumption is retained and under others it is destroyed, or that the presumption is strengthened or weakened, as a result of which, it has been said, the burden of proof shifts from one party to another or the standard of proof changes.
The presumption was, originally, the creation of the courts and was a part of the judge-made body of patent law when the Patent Act of 1952 was written. That act, for the first time, made it statutory in § 282, first paragraph, which, before the amendments of 1965 and 1975,was of the utmost simplicity. It read:
A patent shall be presumed valid. The burden of establishing invalidity of a patent shall rest on the party asserting it.
* * *
[The court reviewed legislative history and commentaries, including Judge Rich's own, concluding:]
To summarize on this point, § 282 creates a presumption that a patent is valid and imposes the burden of proving invalidity on the attacker. That burden is constant and never changes and is to convince the court of invalidity by clear evidence. Deference is due the Patent and Trademark Office decision to issue the patent with respect to evidence bearing on validity which it considered but no such deference is due with respect to evidence it did not consider. All evidence bearing on the validity issue, whether considered by the PTO or not, is to be taken into account by the tribunal in which validity is attacked.
* * *
[The court reviewed the Obviousness issue under §103 and the need for the use of Special Interrogatories to juries on the
facts relating to Obviousness]
3. Fraud in the PTO
On the fraud issue, the court instructed the jury that
* * * the law imposes upon an applicant for a patent and the applicant's attorney, an uncompromising duty to be completely candid and to fully disclose all pertinent facts which may affect the decision that the patent examiner has to make on the question of whether to grant a patent.
The court continued:
If an applicant intentionally and fraudulently withholds any information or makes fraudulent representations to the Patent Office [sic, PTO] which are false and have a material influence upon the examiner in deciding the question of whether to grant a patent on the invention, the patent is not enforceable. A good faith mistake does not constitute fraud.
The jury was also instructed that:
The applicant's duty to disclose all facts pertinent to the prosecution of an application requires disclosure to the [PTO] of all pertinent prior art or other pertinent information of which applicant is aware or reasonably should be aware. The above instructions are defective both with respect to what was stated and by reason of what was not stated.
It is not correct to instruct a jury that an applicant for patent must "fully disclose all pertinent facts which may affect the decision" of the PTO. Such instruction is broad enough to include information which might persuade the examiner to allow claims, as opposed to rejecting them.
Further, a jury should not be given instructions on "fraud in the PTO" that utilize phrases like "fraudulently withholds any information," or "makes fraudulent representations ** * which are false." Such instructions do not aid the jury in understanding "fraud," do not direct the jury to the relevant factual inquiries, and can only cause mental confusion.
Reverting to the court's recitation of a "duty to disclose all facts pertinent to the prosecution of an application," it is also clear that an applicant for patent is under no obligation to disclose "all pertinent prior art or other pertinent information" of which he is aware. Digital Equipment Corp. v. Diamond, 653 F2d 701, 716, 210 USPQ 521, 538 (1st Cir. 1981) ("It is not enough that the information be simply 'relevant' in some general sense to the subject matter of the claimed invention, or even to the invention's patentability."). Nor does an applicant for patent, who has no duty to conduct a prior art search, have an obligation to disclose any art of which, in the court's words, he "reasonably should be aware." The former portion of the court's instruction ignores the requirement of materiality and the latter portion overlooks the intent requirement.
It has been noted that courts have utilized at least three distinct orders of materiality: (1) an objective "but for" standard; (2) a subjective "but for" standard; and, (3) a "but it may have" standard. E.g., Plastic Container Corp.v. Continental Plastics of Oklahoma, Inc., 607 F2d 885, 899, 203 USPQ 27, 38- 39(10th Cir. 1979); Gemveto Jewelry Co v. Lambert Bros., Inc.,542 F. Supp. 933,939-40, 216 USPQ 976, 981 (SD NY 1982). Criterion (3) endorses inquiry into whether the involved facts "might reasonably have affected the examiner's decision as to patentability." Gemveto Jewelry, supra.
Although strikingly similar to the "but it may have" guideline, there is yet another and official "standard." PTO Rule 1.56(a), explains materiality. It says that information "is material where there is [1] a substantial likelihood that [2] a reasonable examiner [3] would consider it important [4] in deciding whether to allow the application to issue as a patent." 37 CFR1.56 (a), third sentence (1983).
We also emphasize that the pertinent inquiry is not whether a reasonable examiner would want to be aware of a particular thing, but whether, after he was aware of it, he would"consider it important" in deciding whether to reject one or more claims.
The PTO "standard" is an appropriate starting point for any discussion of materiality,for it appears to be the broadest, thus encompassing the others, and because that materiality boundary most closely aligns with how one ought to conduct business with the PTO. There is no reason, however, to be bound by any single standard, for the answer to any inquiry into fraud in the PTO does not begin and end with materiality, nor can materiality be said to be unconnected to other considerations:
Questions of "materiality" and "culpability" are often interrelated and intertwined, so that a lesser showing of the materiality of the withheld information may suffice when an intentional scheme to defraud is established, whereas a greater showing of the materiality of withheld information would necessarily create an inference that its non-disclosure was "wrongful."
[Digital Equipment Corp. v. Diamond, supra at 716, 210 USPQ at 538.]
Thus, for example, where an objective "but for" inquiry is satisfied under the appropriate standard of proof, and although one is not necessarily grossly negligent in failing to anticipate judicial resolution of validity, a lesser showing of facts from which intent can be inferred maybe sufficient to justify holding the patent invalid or unenforceable, in whole or in part. Conversely, where it is demonstrated that a reasonable examiner would merely have considered particular information to be important but not crucial to his decision not to reject, a showing of facts which would indicate something more than gross negligence or recklessness may be required, and good faith judgment or honest mistake might well be a sufficient defense.
In this case, the court should have instructed the jury that it was to determine the pertinency of the withheld information, which is a question of fact. In light of that pertinency, it could then have resolved the question of materiality and the degree thereof.
Jury instructions must be confined to the issues as presented by the pleadings and evidence. Thus, because there was no testimony by the examiner who passed the application to issue, the jury might here have been instructed as to the PTO Rule 1.56 materiality standard, the "but it may have" standard, or the objective "but for" standard.
The jury must also determine how convincing has been the proof of intent, if at all. It should, therefore, be instructed that it may find a showing on this element to be lacking entirely or that it may find intent to have been shown by any relevant degree of proof -- from inference to direct evidence, i.e., from gross negligence or recklessness to a deliberate scheming.
The considerations here are distinct from fraud as a common law cause of action. In the latter instance, it is usual that a jury can render a verdict for plaintiff by answering affirmatively the factual questions of (1) knowing (2) misrepresentation or omission (3) of a material ("important" or "inducing") fact, (4) intent, and (5) reliance by the party deceived (6)to his damage. It need only answer "yes" to these fact questions to find fraud.
Here, however, because an applicant's misrepresentation or failure to meet his "duty to disclose to the Office information * * * which is material" will not in itself render a patent invalid or unenforceable, see 37 CFR 1.56(a) and(d), "fraud" may be determined only by a careful balancing of intent in light of materiality. The result of that balancing is obviously nota fact that may be found to exist or not, nor is it a mere matter of application of the law to the facts, both normal jury functions. It requires that judicial discretion be brought to bear, and the district court shall decide it.
Sowa argues that AmHoist may not complain of the court's instructions on materiality,for it lodged no objection below. While we recognize that "fraud in the PTO" is an area of law fraught with confusion and contradiction, to allow a jury verdict of fraud to stand on these instructions would be a great injustice. Additionally, and although mindful of the sometime tactic of counsel making a conscious decision not to object to an instruction known to be erroneous, thus allowing to stand, for purposes of appeal, an error that might warrant a new trial, we nevertheless would "reverse on the ground of plain error in a jury charge that was not objected to [because] such is necessary to correct a fundamental error." E.g. Cohen v. Franchard Corp., 478 F2d 115, 124 (2dCir.), cert. denied, 414 US 857 (1973). See 5A Moore's Federal Practice 51.04, at 51- 18 (1982); 1 Devitt and Blackmar, Federal Jury Practice and Instructions 7.03, at 218-23 (1977).
* * *
[The court then discussed the Reissue Proceeding and the Damages issues]
6. Sowa's Antitrust and Unfair Competition Counterclaims
After denying AmHoist's motion for judgment n.o.v. or, in the alternative,for a new trial, the court held that there was sufficient evidence "to satisfy the jury that there was intentional fraud as distinguished from technical fraud." It then ordered Sowa's antitrust and unfair competition claims based on its allegations of fraud in the PTO set for trial, prompting AmHoist to move for summary judgment and Sowa for partial summary judgment.
On cross-appeal, Sowa argues that the trial court erred in granting AmHoist's summary judgment motion and in dismissing Sowa's counterclaims. It contends that the district court erred in holding that, at the least, the "subjective but for" test of materiality must be satisfied and was not. Additionally, it suggests that the dismissal was erroneous because "Sowa either proved, or offered to prove, the other elements required to make out a Sherman Act § 2 violation and the trial court did not question the presence of such other elements." Although AmHoist asserts that the counterclaims are defective for failure to introduce or offer evidence on the relevant market, Sowa responds that "relevant market is not a necessary element of a Section 2 Sherman Act violation under established Ninth Circuit Law."
* * *
Sowa cites cases that rely on Lessig v. Tidewater Oil Co., 327 F2d 459 (9thCir.), cert. denied, 377 US 993 (1964), a Sherman Act and Clayton Act case that arose from Tidewater's cancellation of a service station lease and dealer contract with Lessig, for the proposition that proof of relevant market is dispensable to "attempt" cases. However, that case was decided prior to Walker Process Equip., Inc. v. Food Machinery & Chemical Corp., 382 US 172 (1965), where the Supreme Court said:
To establish monopolization or attempt to monopolize a part of trade or commerce under § 2 of the Sherman Act, it would then be necessary to appraise the exclusionary power of the illegal patent in terms of the relevant market for the product involved.
[Id. at 177.]
* * *
Sowa also argues, however, that fraudulent procurement of a patent should be classified with those types of conduct that have been held to be per se violations of 15 USC 2. The answer to this contention is a simple one.
The patent system, which antedated the Sherman Act by a century, is not an "exception"to the antitrust laws, and patent rights are not legal monopolies in the antitrust sense of that word. Accordingly, if a patent is held to have been obtained illegally, it is not properly said, ipso facto, that it was all along an illegal monopoly and, thus, that its procurement and attempted enforcement was a per se violation of the antitrust laws. A holding that monopoly analysis should end in favor of liability on a determination of fraud, without more, would signal a fundamental misunderstanding of the substance and purposes of both the patent and the antitrust laws.
[The court affirmed dismissal of the Sherman §1 claim, the §2 conspiracy and monopolization claims and remanded the §2 "attempt claims]
In conclusion, we must note the indications in the transcript of proceedings that there may have been some confusion with respect to "intentional fraud" and"technical fraud." These terms, as the district court apparently recognized, are not interchangeable, yet any confusion that may have resulted is understandable.
Although an unfortunate choice of words, the Supreme Court in Walker Process, supra,stated that an "honest mistake" as to the effect on patentability of withheld information was merely "technical" fraud. Several years later, the CCPA erred in its use of that term, labeling as "technical fraud" the proof of all elements of a common law action for fraud. Norton v. Curtiss, 433 F2d 779, 167 USPQ 532 (CCPA 1970). We here endorse the meaning utilized by the Supreme Court, although we will attempt to couch future discussion of such claims simply in terms of "fraud" and "no fraud."
* * *
[After discussing the District Court's remarks on the §2 "attempt", the decision stated:]
These excerpts seem to indicate that there was no thorough conviction on either materiality or intent. Thus, in reversing the court's decision on the attempt charge, we caution that such allegations are not lightly sustained. Further, with respect to the attempt-to-monopolize counterclaim based on fraud, we emphasize that a specific intent, greater than an intent evidenced by gross negligence or recklessness, is an indispensable element. E.g., United States v. Aluminum Co. of America, 148 F2d 416, 431-32 (2d Cir. 1945).
In light of the need for reconsideration of patentabi ity and the fraud charge by the district court, we also reverse the court's decision to dismiss Sowa's unfair competition counterclaim. On remand, however, Sowa must set forth precisely what it believes amounted to unfair competition and why, including what injury it thinks it has suffered as a result. The few cases it cited are not helpful in this regard, and its brief discussion of AmHoist's patent prosecution and enforcement activities in relation to the general policies of unfair competition is inadequate.
Conclusion
For the foregoing reasons, we affirm the dismissal of Sowa's 15 USC 1 counterclaims and its 15 USC 2 monopolization and
conspiracy counterclaims, we reverse the decision to dismiss Sowa's unfair competition and 15 USC 2 "attempt"-
counterclaims, we reverse the holding that claims 3, 5, and 7 of AmHoist's patent are invalid for obviousness and fraud in
the PTO, we vacate the award of attorney's fees, we reverse the court's determination that the jury could properly have
determined that no damages were proved, and, because there exist disputed matters of fact with respect to the § 103
obviousness issue, we remand for a new trial with directions that the trial be conducted in conformance with this opinion.
_______________________________
Nobelpharma AB and Nobelpharma USA, Inc. v. Implant Innovations, Inc.
141 F.3d 1059, 1998 U.S. App. LEXIS 5564, 46 USPQ2d 1097, 1998-1 Trade Cas. ¶ 72,100 (Fed Cir, 1998)
Rehearing Denied and Suggestion for Rehearing In Banc Declined April 29, 1998, 1998 U.S. App. LEXIS 9290.
From: United States District Court for the Northern District of Illinois. Judge Duff.
This Opinion Substituted on Grant of Rehearing for Withdrawn Opinion of November 18, 1997
Lourie, J.
Nobelpharma AB and Nobelpharma USA, Inc. (collectively, NP) appeal from the judgment of the United States District Court for the Northern District of Illinois holding that (1) U.S. Patent 4,330,891 is invalid under 35 U.S.C. § 112, P 1 (1994), for failure to disclose the best mode of carrying out the invention, (2) Implant Innovations, Inc. (3I) did not infringe the '891 patent, and (3) NP was not entitled to JMOL or, in the alternative, a new trial following the jury verdict in favor of 3I on its antitrust counterclaim against NP, Dr. Per-Ingvar Branemark, and the Institute for Applied Biotechnology. See Nobelpharma AB v. Implant Innovations, Inc., 930 F. Supp. 1241 (N.D. Ill. 1996). We conclude that the district court did not err in granting judgment that the patent is invalid as a matter of law at the close of NP's case-in-chief, and that it did not err in denying NP's motion for JMOL or a new trial on the antitrust counterclaim. Accordingly, the decision of the district court is affirmed.
BACKGROUND
Drs. Branemark and Bo-Thuresson af Ekenstam are the named inventors on the '891 patent, the application for which was filed in 1980 and claimed priority from a Swedish patent application that was filed in 1979. The patent claims "an element intended for implantation into bone tissue." This "element," when used as part of a dental implant, is placed directly into the jawbone where it acts as a tooth root substitute. The implants described and claimed in the patent are preferably made of titanium and have a network of particularly-sized and particularly-spaced " micropits." These micropits, which have diameters in the range of about 10 to 1000 nanometers or, preferably, 10 to 300 nanometers, allow a secure connection to form between the implant and growing bone tissue through a process called "osseointegration."
Branemark is also one of the authors of a book published in 1977, entitled "Osseointegrated Implants in the Treatment of the Edentulous Jaw Experienced from a 10-Year Period" (hereinafter "the 1977 Book"). As its title suggests, this book describes a decade-long clinical evaluation of patients who had received dental implants. The 1977 Book includes a single page containing four scanning electron micrographs (SEMs) of titanium implants that exhibit micropits. The caption describing these SEMs reads, in part:
"Irregularities are produced during manufacturing in order to increase the retention of the implants within the mineralized tissue." 3I determined, based on measurements and calculations that it presented to the trial court, that the micropits shown in the 1977 Book have diameters within the range claimed in the '891 patent. However, the 1977 Book does not specifically refer to "micropits."
In preparing to file the Swedish patent application, af Ekenstam submitted a draft written description of the invention to the inventors' Swedish patent agent, Mr. Barnieske. This draft referred to the 1977 Book in the following translated passage:
In ten years of material pertaining to titanium jaw implants in man, Branemark et al. [in the 1977 Book] have shown that a very high frequency of healing, as stated above, can be achieved by utilizing a carefully developed surgical technique and adequately produced implants.
However, Barnieske deleted all reference to the 1977 Book from the patent application that was ultimately filed in Sweden. Similarly, the 1977 Book is not mentioned in the U.S. patent application filed by Barnieske on behalf of Branemark and af Ekenstam.
In June 1980, while the U.S. patent application was pending, Branemark entered into an exclusive license agreement with NP covering the claimed technology. Barnieske kept NP informed of the prosecution of the U.S. patent application and received assistance from NP's U.S. patent agent. The '891 patent issued in 1982; NP has since asserted it in at least three patent infringement suits.
In July 1991, while Branemark was a member of NP's Board of Directors, NP brought this suit alleging that certain of 3I's dental implants infringed the '891 patent. 3I defended on the grounds of invalidity, unenforceability, and non-infringement. 3I also brought an antitrust counterclaim, based in part on the assertion that NP attempted to enforce a patent that it knew was invalid and unenforceable. Specifically, 3I alleged that when NP brought suit, NP was aware that the inventors' intentional failure to disclose the 1977 Book to the U.S. Patent and Trademark Office (PTO) would render the '891 patent unenforceable.
During its case-in-chief, NP introduced portions of a deposition of Branemark that apparently was conducted several years before this trial began in connection with a lawsuit involving neither NP nor 3I. NP also introduced into evidence portions of that deposition that were counter-designated for introduction by 3I. Branemark's deposition testimony included his admissions that one "could consider" the procedure used to manufacture the micropitted surface a trade secret, and "it might be" that there are details "important to making" the micropitted surface that are not disclosed in the patent. At the close of NP's case-in-chief, the district court granted 3I's motion for JMOL of invalidity and non-infringement. The court held that the patent was invalid under § 112, P 1, for failure to disclose the best mode and that NP had failed to prove infringement. The court then denied NP's motion for JMOL on 3I's antitrust counterclaim, proceeded to inform the jury that the court had held the patent invalid, and allowed 3I to present the counterclaim to the jury.
After trial limited to the antitrust issue, the jury found in special verdicts, inter alia, that 3I had proven that (1) "the inventors or their agents or attorneys obtained the '891 patent through fraud," (2) NP "had knowledge that the '891 patent was obtained by fraud at the time this action was commenced against 3I," and (3) NP "brought this lawsuit against 3I knowing that the '891 patent was either invalid or unenforceable and with the intent of interfering directly with 3I's ability to compete in the relevant market." The jury awarded 3I approximately $ 3.3 million in compensatory damages, an amount the court trebled pursuant to section 4 of the Clayton Act, 15 U.S.C. § 15 (1994). The court declined to rule on whether the patent was unenforceable for inequitable conduct, concluding that its judgment of invalidity rendered the issue of enforceability moot. Nobelpharma AB v. Implant Innovations, Inc., 875 F. Supp. 481, 34 USPQ2d 1090 (N.D. Ill. 1995).
The court then denied NP's renewed motion for JMOL on the counterclaim or, in the alternative, for a new trial on both the counterclaim and the infringement claim. Nobelpharma AB, 930 F. Supp. at 1246. In denying NP's post-verdict motion for a new trial on the issue of infringement, the district court again concluded that the patent was invalid for failure to disclose the best mode. Id. at 1247-49. The court also concluded that NP was not entitled to JMOL on the counterclaim because, inter alia, "NP, as the assignee of the patent, maintained and enforced the patent with knowledge of the patent's fraudulent derivation." Id. at 1257. The court denied NP's motion for a new trial on the counterclaim, holding, inter alia, that it did not err in its evidentiary rulings or in refusing to instruct the jury that in order to impose antitrust liability against NP, it must find NP's lawsuit "objectively baseless." Id. at 1264.
NP appealed to this court, challenging the district court's grant of 3I's motion for JMOL of invalidity and non-infringement and its denial of the post-verdict motion for JMOL or a new trial. We have jurisdiction pursuant to 28 U.S.C. § 1295(a)(1) (1994).
DISCUSSION
A. Invalidity
At the close of NP's case-in-chief, the district court granted 3I's motion for judgment of invalidity under § 112, P 1, as a matter of law for failure to
disclose the best mode of practicing the invention. NP then filed a motion for reconsideration, which was denied, in order to reopen the evidence and offer proof regarding its compliance with § 112, P 1. After the jury returned its verdict in favor of 3I on its antitrust counterclaim, NP moved for a new trial, again arguing that the court had erred in granting 3I's motion for JMOL. In reaffirming its decision to grant 3I's motion for JMOL, the district court held that Branemark's own testimony "demonstrates that when [he] filed his patent application, he contemplated a best mode of practicing his invention, but his disclosures were inadequate to enable one skilled in the art to practice that best mode." 930 F. Supp. at 1248. The district court also explicitly noted that its decision was not based on Branemark's purported "non-disclosure" of NP's later-developed manufacturing procedure. Id.
On appeal, NP again argues that the district court erred in granting JMOL on the invalidity issue because in doing so the court drew improper, unsupported inferences against NP and erroneously imposed on NP the burden of proving validity. NP also argues that the grant of JMOL denied it due process because the court had mandated a "natural order of proof" at trial and thus had effectively barred NP from introducing any evidence to show that it had satisfied the best mode requirement during its case-in-chief.
In response, 3I argues that Branemark's own unequivocal admissions indicate that he had developed and tested a preferred method of making the claimed implants when the patent application was filed. 3I also argues that Branemark admitted that the patent does not contain a disclosure adequate to enable one of ordinary skill in the art to practice this method. Finally, 3I argues that NP was not denied due process because NP had sufficient opportunity to offer evidence in opposition to 3I's motion for JMOL of invalidity and failed to do so. We agree with 3I that the court did not err in its grant of the motion for JMOL and therefore that the court did not err in denying NP's motion for a new trial on its infringement claim.
We review a district court's grant of a motion for JMOL under Fed. R. Civ. P. 50(a)(1) de novo by reapplying the standard applicable at the district court. See Allied Colloids Inc. v. American Cyanamid Co., 64 F.3d 1570, 1573, 35 USPQ2d 1840, 1841 (Fed. Cir. 1995). Under that standard, we examine the record in the light most favorable to the non-movant, which in this case is NP, and afford it the benefit of all reasonable inferences. Id. Accordingly, "we may affirm only if the judgment entered was the only one possible under the controlling law." Burroughs Wellcome Co. v. Barr Lab., Inc., 40 F.3d 1223, 1227, 32 USPQ2d 1915, 1919 (Fed. Cir. 1994), cert. denied, 516 U.S. 1070, 116 S. Ct. 771, 516 U.S. 1071, 133 L. Ed. 2d 724 (1996) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986) (prohibiting JMOL "if reasonable minds could differ as to the import of the evidence.")).
Rule 50(a)(1) provides, in relevant part, that if a party has been fully heard on an issue and there is no legally sufficient evidentiary basis for a reasonable jury to find for that party on that issue, the court may determine the issue against that party and may grant a motion for judgment as a matter of law [JMOL] against that party with respect to a claim or defense that cannot under the controlling law be maintained or defeated without a favorable finding on that issue. Fed. R. Civ. P. 50(a). "Thus, the verdict may be directed after the plaintiff's case is presented, when it is clear that completion of the trial is unnecessary in that the only sustainable verdict could be in favor of the defendant." Allied Colloids, 64 F.3d at 1573, 35 USPQ2d at 1841.
By statute, patents are presumed to be valid. 35 U.S.C. § 282 (1994). Thus, 3I had the burden of establishing by clear and convincing evidence facts supporting the conclusion that the '891 patent is invalid. See Transco Prods. Inc. v. Performance Contracting, Inc., 38 F.3d 551, 560, 32 USPQ2d 1077, 1084 (Fed. Cir. 1994). The patent statute requires that a patent specification "shall set forth the best mode contemplated by the inventor of carrying out his invention." 35 U.S.C. § 112, P 1 (1994). Determining whether a patent fails to comply with the best mode requirement and is thus invalid involves two factual inquiries. First, the fact-finder must determine whether at the time an applicant filed an application for patent, he or she had a best mode of practicing the invention, which is a subjective determination. Second, if the inventor had a best mode of practicing the invention, the fact-finder must determine whether the best mode was disclosed in sufficient detail to allow a skilled artisan to practice it without undue experimentation, which is an objective determination. See United States Gypsum Co. v. National Gypsum Co., 74 F.3d 1209, 1212, 37 USPQ2d 1388, 1390 (Fed. Cir. 1996).
For whatever reason, NP introduced as part of its own case-in-chief all of the portions of Branemark's deposition that were counter-designated by 3I. /n3 These included Branemark's statements, introduced by and unchallenged by NP, that (1) "there were some minor details that were not included [in the patent] and which proved to be quite important," (2) other skilled artisans would have to be "lucky" to obtain a suitable micropitted implant "by cutting a piece of titanium at a speed less than twenty meters per minute," the cutting speed disclosed in the patent, and (3) "any of the small detailed recipes that I discussed but did not specify" in the patent "can cause you to fail to get micropitting even though you were cutting the metal at less than twenty meters per minute." The record also unambiguously indicates that when he filed his patent application, Branemark was aware that a variety of undisclosed machining parameters were critical to the production of a functional implant, i.e., one that would allow for sseointegration. Moreover, the research on which the 1977 Book was based also indicates that Branemark possessed a preferred mode of making the claimed implants by the time the U.S. patent application was filed in 1980. Thus, the evidence at trial leads to only one reasonable conclusion: Branemark possessed a preferred method of making the claimed invention and failed to disclose it sufficiently to enable those skilled in the art to practice that method.
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n3 NP suggests that it introduced the portions counter-designated "as a matter of convenience and efficiency" during its own case-in-chief. At oral argument, NP also suggested that it introduced these portions "as a courtesy" to 3I. While such motives are commendable, they do not change the significance and meaning of this evidence.
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Normally, evidence presented by a patentee-plaintiff will not support a grant of a JMOL invalidating a patent. That is because the burden is on an accused infringer to show by clear and convincing evidence facts supporting the conclusion that the patent is invalid. See generally 9A Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 2535, at 325 (2d ed. 1994) ("Courts often caution that granting a [JMOL] for the party bearing the burden of proof is reserved for extreme cases."). Accordingly, grant of JMOL in favor of a party bearing the burden of proof may be granted only where (1) the movant "has established [its] case by evidence that the jury would not be at liberty to disbelieve" and (2) "the only reasonable conclusion is in [the movant's] favor." Hurd v. American Hoist & Derrick Co., 734 F.2d 495, 499 (10th Cir. 1984). However, in unusual cases, an admission made by a plaintiff's witness can be sufficient to support entry of a JMOL in favor of a defendant after the close of the plaintiff's case-in-chief, even where the defendant bears the burden of proof on the decided issue. See, e.g., Falco Lime, Inc. v. Tide Towing Co., 29 F.3d 362, 365-66 (8th Cir. 1994) (holding that JMOL was properly granted after the close of plaintiff's case in view of the admissions of plaintiff's chief witness regarding a contract that established defendant's affirmative defense). Given Branemark's admissions, we conclude that this is one of those "extreme" cases in which it was not improper to grant JMOL in favor of a defendant on an issue regarding which it bore the burden of proof.
Contrary to NP's arguments, the district court did not draw adverse inferences against NP to support its judgment. Rather, it properly relied on a co-inventor's statements "that the jury would not be at liberty to disbelieve." Hurd, 734 F.2d at 499. Similarly, the district court did not place the burden of proving validity on NP; NP's own evidence was clear and convincing that the patent is invalid. This evidence led to "the only reasonable conclusion." Id.
We also agree with 3I that NP was not denied due process. When NP was confronted with 3I's motion for JMOL, it was not unfairly surprised. 3I had consistently alleged that the '891 patent was invalid under § 112, P 1. Moreover, NP had an opportunity to oppose 3I's motion, but it failed to do so adequately. After the court's grant of JMOL, NP responded by offering evidence and argument only concerning NP's later-developed manufacturing procedure. However, as noted above, the district court's ultimate decision did not rely on the "non-disclosure" of NP's later-developed manufacturing processes. Likewise, in affirming the decision of the district court, we do not rely on that evidence. Rather, we rely only on the clear and convincing evidence that Branemark failed to disclose his best mode of practicing the claimed invention when he filed his patent application. NP failed to present any evidence or argument to undermine the import of that
evidence, even though it knew that the best mode issue was before the court; it thus had ample opportunity to prepare and present evidence and argument. Whatever disadvantage NP may have suffered when the JMOL was granted was rectified by the opportunity it had after the judgment was rendered. Any error was thus harmless. NP was therefore not denied due process.
Accordingly, we affirm the judgment that the '891 patent is invalid as a matter of law under § 112, P 1, for failure to disclose the best mode of practicing the invention. Because we affirm the district court's decision holding the patent invalid, we need not consider NP's arguments concerning infringement. See B.F. Goodrich Co. v. Aircraft Braking Sys. Corp., 72 F.3d 1577, 1583, 37 USPQ2d 1314, 1319 (Fed. Cir. 1996). B. Antitrust Liability
I.
After the jury returned its verdict in favor of 3I on its counterclaim that NP violated the antitrust laws by bringing suit against 3I, the court denied NP's motion for JMOL or, in the alternative, for a new trial under Fed. R. Civ. P. 50(b). In denying NP's motion, the district court held that the verdict was supported, inter alia, by the jury's factual findings that the patent was obtained through "NP's knowing fraud upon, or intentional misrepresentations to, the [PTO]" and that "NP maintained and enforced the patent with knowledge of the patent's fraudulent derivation" and with the intent of interfering directly with 3I's ability to compete in the relevant market. 930 F. Supp. at 1257. The court further held, based on these findings, that the jury need not have considered whether NP's suit was "objectively baseless." Id. at 1264.
In support of its position that the court erred in denying its renewed motion for JMOL, NP argues that there was a lack of substantial evidence to support the jury's findings that the patent was obtained through "fraud" and that NP was aware of that conduct when it brought suit against 3I. NP also argues that these findings, even if supported by substantial evidence, do not provide a legal basis for the imposition of antitrust liability. Finally, NP argues that it is entitled to a new trial because the court failed to instruct the jury that bringing a lawsuit cannot be the basis for antitrust liability if that suit is not "objectively baseless."
3I responds that the jury's explicit findings that the patent was procured through fraudulent conduct and that NP knew of that conduct when it brought suit were supported by substantial evidence, and that these findings provide a sound basis for imposing antitrust liability on NP. Responding to NP's arguments for a new trial, 3I argues that an "objectively reasonable" or "objectively baseless" jury instruction was not necessary because the district court required that 3I prove that NP had actual knowledge of the fraud when it brought suit and that even if such an instruction had been necessary, NP waived this argument by failing to propose a jury instruction relating to an "objectively baseless" standard. We agree with 3I that the court did not err in denying NP's motion for JMOL because substantial evidence supports the jury's findings that the patent was fraudulently obtained and that NP sought to enforce the patent with knowledge of its fraudulent origin. Similarly, the court did not err in denying NP's motion for a new trial because NP was not prejudiced by any legally erroneous jury instruction.
We review a district court's denial of a post-trial motion for JMOL under Fed. R. Civ. P. 50(b) de novo by reapplying the standard applicable at the district court. Thus, this court must determine whether there exists evidence of record upon which a jury might properly have returned a verdict in [the non-movant's] favor when the correct legal standard is applied. If there is not, [the movant] was entitled to have the question removed from the jury and decided as a matter of law. Markman v. Westview Instruments, Inc., 52 F.3d 967, 975, 34 USPQ2d 1321, 1326 (Fed. Cir. 1995) (in banc) (quoting Jamesbury Corp. v. Litton Indus. Prods., Inc., 756 F.2d 1556, 1560, 225 USPQ 253, 257 (Fed. Cir. 1985)), aff'd, 517 U.S. 370, 116 S. Ct. 1384, 38 USPQ2d 1461, 134 L. Ed. 2d 577 (1996); see also Deimer v. Cincinnati Sub-Zero Prods., Inc., 58 F.3d 341, 343 (7th Cir. 1995); Shearing v. Iolab Corp., 975 F.2d 1541, 1544, 24 USPQ2d 1133, 1136 (Fed. Cir. 1992) ("On appeal after denial of a motion for JNOV, the appellant must prove that the record lacks substantial evidence to support the jury's verdict."). In applying this standard, we must also "view the evidence in the light most favorable to the nonmoving party," which in this case is 3I. Deimer, 58 F.3d at 343.
We review a district court's denial of a motion for a new trial for an abuse of discretion. Railroad Dynamics, Inc. v. A. Stucki Co., 727 F.2d 1506, 1512,
220 USPQ 929, 936 (Fed. Cir. 1984). Accordingly, we may reverse the district court if, inter alia, the district court prejudiced NP's substantive rights by abusing its discretion in admitting or excluding evidence, see Munoz v. Strahm Farms, Inc., 69 F.3d 501, 36 USPQ2d 1499, 1501 (Fed. Cir. 1995), or by giving legally erroneous jury instructions, see Jamesbury, 756 F.2d at 1558, 225 USPQ2d at 255. See generally 12 McLaughlin et al., Moore's Federal Practice § 59.20 to 59.25, at 59-27 to 59-47 (3d ed. 1997).
II.
As a general proposition, when reviewing a district court's judgment involving federal antitrust law, we are guided by the law of the regional circuit in which that district court sits. See Loctite Corp. v. Ultraseal Ltd., 781 F.2d 861, 875, 228 USPQ 90, 99 (Fed. Cir. 1985) ("We must approach a federal antitrust claim as would a court of appeals in the circuit of the district court whose judgment we review.") (citing Atari, Inc. v. JS&A Group, Inc., 747 F.2d 1422, 1438-40, 223 USPQ 1074, 1086-87 (Fed. Cir. 1984) (in banc)); see also Cygnus Therapeutic Sys. v. ALZA Corp., 92 F.3d 1153, 1161, 39 USPQ2d 1666, 1672 (Fed. Cir. 1996) (citing Loctite). However, we apply our own law, not regional circuit law, to resolve issues that clearly involve our exclusive jurisdiction. See Pro-Mold & Tool Co. v. Great Lakes Plastics, Inc., 75 F.3d 1568, 1574-75, 37 USPQ2d 1626, 1631 (Fed. Cir. 1996) (holding as a matter of Federal Circuit law that an allegation of inequitable conduct in the prosecution of a patent application cannot support a federal unfair competition claim) (citing Chrysler Motors Corp. v. Auto Body Panels, Inc., 908 F.2d 951, 953 15 USPQ2d 1469, 1470 (Fed. Cir. 1990)). See generally Biodex Corp. v. Loredan Biomedical, Inc., 946 F.2d 850, 855-58, 20 USPQ2d 1252, 1256-59 (Fed. Cir. 1991).
Whether conduct in the prosecution of a patent is sufficient to strip a patentee of its immunity from the antitrust laws is one of those issues that clearly involves our exclusive jurisdiction over patent cases. It follows that whether a patent infringement suit is based on a fraudulently procured patent impacts our exclusive jurisdiction.
Moreover, an antitrust claim premised on stripping a patentee of its immunity from the antitrust laws is typically raised as a counterclaim by a defendant in a patent infringement suit. See Argus Chem. Corp. v. Fibre Glass-Evercoat Co., 812 F.2d 1381, 1383, 1 USPQ2d 1971, 1973 (Fed. Cir. 1987) ("Walker Process, like the present case, was a patent infringement suit in which an accused infringer filed an antitrust counterclaim.")./n4 Because most cases involving these issues will therefore be appealed to this court, we conclude that we should decide these issues as a matter of Federal Circuit law, rather than rely on various regional precedents. We arrive at this conclusion because we are in the best position to create a uniform body of federal law on this subject and thereby avoid the "danger of confusion [that] might be enhanced if this court were to embark on an effort to interpret the laws" of the regional circuits. Forman v. United States, 767 F.2d 875, 880 n.6 (Fed. Cir. 1985). Accordingly, we hereby change our precedent and hold that whether conduct in procuring or enforcing a patent is sufficient to strip a patentee of its immunity from the antitrust laws is to be decided as a question of Federal Circuit law. n5 This conclusion applies equally to all antitrust claims premised on the bringing of a patent infringement suit. Therefore, Cygnus, 92 F.3d at 1161, 39 USPQ2d at 1672, Loctite, 781 F.2d at 875, 228 USPQ at 99, and Atari, 747 F.2d at 1438-40, 223 USPQ at 1086-87, are expressly overruled to the extent they hold otherwise. However, we will continue to apply the law of the appropriate regional circuit to issues involving other elements of antitrust law such as relevant market, market power, damages, etc., as those issues are not unique to patent law, which is subject to our exclusive jurisdiction. See, e.g., Virginia Panel Corp. v. MAC Panel Co., 133 F.3d 860, 872-73, 45 USPQ 2d 1225, 1234-35 (Fed. Cir. 1997) (applying Fourth Circuit law on antitrust injury).
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n4 Compare Tank Insulation Int'l, Inc. v. Insultherm, Inc., 104 F.3d 83, 88 & n.5, 41 USPQ2d 1545, 1549 & n.5 (5th Cir.), cert. denied, 139 L. Ed. 2d 191, 118 S. Ct. 265 (1997), and Hydranautics v. FilmTec Corp., 70 F.3d 533, 536-37, 36 USPQ2d 1773, 1775 (9th Cir. 1995) ("A claim that patent infringement litigation violated an antitrust statute is a permissive, not a mandatory, counterclaim in a patent infringement case, and is not barred in a subsequent suit by failure to raise it in the infringement suit." (citing Mercoid Corp. v. Mid-Continent Inv. Co., 320 U.S. 661, 669-
71, 60 USPQ 21, 26-27, 88 L. Ed. 376, 64 S. Ct. 268 (1944))) with Burlington Indus., Inc. v. Milliken & Co., 690 F.2d 380, 389, 217 USPQ 662, 668 (4th Cir. 1982) (stating that Mercoid "has been read narrowly in this respect, and its continuing validity is open to serious question." (citing United States v. Eastport S.S. Corp., 255 F.2d 795, 805 (2d Cir. 1958); Martino v. McDonald's Sys., Inc., 432 F. Supp. 499, 505 (N.D. Ill. 1977), aff'd, 598 F.2d 1079 (7th Cir. 1979))), and USM Corp. v. SPS Techs., Inc., 102 F.R.D. 167, 170-71, 225 USPQ 715, 717 (N.D. Ill. 1984) ("Notwithstanding Mercoid, the majority of courts, when faced with this issue, have held that antitrust claims are compulsory counterclaims under Rule 13(a) if the antitrust claim arises out of the same transaction or occurrence as the original claim. The Seventh Circuit has expressly refused to decide the issue." (citations omitted)).
n5 Because precedent may not be changed by a panel, see South Corp. v. United States, 690 F.2d 1368, 1370 n.2, 215 USPQ 657, 658 n.2 (Fed. Cir. 1982) (in banc), the issue of "choice of circuit" law set forth in this Section B.II. has been considered and decided unanimously by an in banc court consisting of MAYER, Chief Judge, RICH, NEWMAN, MICHEL, PLAGER, LOURIE, CLEVENGER, RADER, SCHALL, BRYSON, and GAJARSA, Circuit Judges.
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III.
A patentee who brings an infringement suit may be subject to antitrust liability for the anti-competitive effects of that suit if the alleged infringer (the antitrust plaintiff) proves (1) that the asserted patent was obtained through knowing and willful fraud within the meaning of Walker Process Equip., Inc. v. Food Machinery & Chemical Corp., 382 U.S. 172, 177, 147 USPQ 404, 407, 15 L. Ed. 2d 247, 86 S. Ct. 347 (1965), or (2) that the infringement suit was "a mere sham to cover what is actually nothing more than an attempt to interfere directly with the business relationships of a competitor," Eastern R.R. Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S. 127, 144, 5 L. Ed. 2d 464, 81 S. Ct. 523 (1961); California Motor Transp. Co. v. Trucking Unlimited, 404 U.S. 508, 510, 30 L. Ed. 2d 642, 92 S. Ct. 609 (1972) (holding that Noerr "governs the approach of citizens or groups of them . . . to courts, the third branch of Government"). See Professional Real Estate Investors, Inc. v. Columbia Pictures Industries, Inc. 508 U.S. 49, 62 n.6, 26 USPQ 2d 1641, 1646-47 n.6, 123 L. Ed. 2d 611, 113 S. Ct. 1920 (1993) (PRE) (declining to decide "whether and, if so, to what extent Noerr permits the imposition of antitrust liability for a litigant's fraud or other misrepresentations").
In Walker Process, the Supreme Court held that in order "to strip [a patentee] of its exemption from the antitrust laws" because of its attempting to enforce its patent monopoly, an antitrust plaintiff is first required to prove that the patentee "obtained the patent by knowingly and willfully misrepresenting facts/n6 to the [PTO]." 382 U.S. at 177, 147 USPQ 2d at 407. The plaintiff in the patent infringement suit must also have been aware of the fraud when bringing suit. Id. at 177 & n.6, 147 USPQ 2d at 407 & n.6. The Court cited prior decisions that involved the knowing and willful misrepresentation of specific facts to the Patent Office: Precision Instrument Manufacturing Co. v. Automotive Maintenance Mach. Co., 324 U.S. 806, 65 USPQ 133, 89 L. Ed. 1381, 65 S. Ct. 993 (1945) (misrepresenting that the inventor had conceived, disclosed, and reduced to practice the invention on certain dates); Hazel-Atlas Glass Co. v. Hartford-Empire Co., 322 U.S. 238, 61 USPQ 241, 88 L. Ed. 1250, 64 S. Ct. 997 (1944) (misrepresenting that a widely known expert had authored an article praising the invention); and Keystone Driller Co. v. General Excavator Co., 290 U.S. 240, 78 L. Ed. 293, 54 S. Ct. 146 (1933) (involving an agreement to suppress evidence in the course of litigation). These cases indicate the context in which the Court established the knowing and willful misrepresentation test.
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n6 The alleged misrepresentation in that case involved the patentee's sworn statement "that it neither knew nor believed that its invention had been in public use in the United States more than one year prior to filing its patent application when, in fact, [it] was a party to prior use within such time." Walker Process, 382 U.S. at 174, 147 USPQ at 406. The PTO does not currently require inventors to file a sworn statement regarding such knowledge or belief. See 35 U.S.C § 115 (1994); 37 C.F.R. § 1.63 (1996).
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Justice Harlan, in a concurring opinion, emphasized that to "achieve a suitable accommodation in this area between the differing policies of the patent and antitrust laws," a distinction must be maintained between patents procured by "deliberate fraud" and those rendered invalid or unenforceable for other reasons. Walker Process, 382 U.S. at 179-80, 147 USPQ at 408. He then stated:
To hold, as we do not, that private antitrust suits might also reach monopolies practiced under patents that for one reason or another may turn out to be voidable under one or more of the numerous technicalities attending the issuance of a patent, might well chill the disclosure of inventions through the obtaining of a patent because of fear of the vexations or punitive consequences of treble-damage suits. Hence, this private antitrust remedy should not be deemed available to reach [Sherman Act] § 2 monopolies carried on under a nonfraudulently procured patent. Id. at 180, 147 USPQ at 408.
Consistent with the Supreme Court's analysis in Walker Process, as well as Justice Harlan's concurring opinion, we have distinguished "inequitable conduct" from Walker Process fraud, noting that inequitable conduct is a broader, more inclusive concept than the common law fraud needed to support a Walker Process counterclaim. See, e.g., Hewlett-Packard Co. v. Bausch & Lomb Inc., 882 F.2d 1556, 1563, 11 USPQ2d 1750, 1756 (Fed. Cir. 1989); FMC Corp. v. Manitowoc Co., 835 F.2d 1411, 1417-18, 5 USPQ2d 1112, 1117 (Fed. Cir. 1987); Argus Chem., 812 F.2d at 1384-85, 1 USPQ 2d at 1973-74; J.P. Stevens & Co. v. Lex Tex Ltd., 747 F.2d 1553, 1559, 223 USPQ 1089, 1092 (Fed. Cir. 1984) ("Conduct before the PTO that may render a patent unenforceable is broader than common law fraud."). Inequitable conduct in fact is a lesser offense than common law fraud, and includes types of conduct less serious than "knowing and willful" fraud.
In Norton v. Curtiss, 57 C.C.P.A. 1384, 433 F.2d 779, 792-94 & n.12, 167 USPQ 532, 543-45 & n.12 (CCPA 1970), our predecessor court explicitly distinguished inequitable conduct from "fraud," as that term was used by the Supreme Court in Walker Process. The court noted that the concept of "fraud" has most often been used by the courts, in general, to refer to a type of conduct so reprehensible that it could alone form the basis of an actionable wrong (e.g., the common law action for deceit.) . . . . Because severe penalties are usually meted out to the party found guilty of such conduct, technical fraud n7 is generally held not to exist unless the following indispensable elements are found to be present: (1) a representation of a material fact, (2) the falsity of that representation, (3) the intent to deceive or, at least, a state of mind so reckless as to the consequences that it is held to be the equivalent of intent (scienter), (4) a justifiable reliance upon the misrepresentation by the party deceived which induces him to act thereon, and (5) injury to the party deceived as a result of his reliance on the misrepresentation. See, e.g., W. Prosser, Law of Torts, §§ 100-05 (3d ed. 1964); 37 C.J.S. Fraud § 3 (1943). 433 F.2d at 792-93, 167 USPQ at 543; see also J.P. Stevens, 747 F.2d at 1559, 223 USPQ at 1092 (citing Norton). The court then contrasted such independently actionable common law fraud with lesser misconduct, including what we now refer to as inequitable conduct, which "fails, for one reason or another, to satisfy all the elements of the technical offense." Norton, 433 F.2d at 793, 167 USPQ at 543. Regarding such misconduct, "the courts appear to look at the equities of the particular case and determine whether the conduct before them . . . was still so reprehensible as to justify the court's refusing to enforce the rights of the party guilty of such conduct." Id.
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n7 We understand from the enumeration of elements that the term "technical fraud" was used by the court to mean common law fraud.
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Inequitable conduct is thus an equitable defense in a patent infringement action and serves as a shield, while a more serious finding of fraud potentially exposes a patentee to antitrust liability and thus serves as a sword. See Korody-Colyer Corp. v. General Motors Corp., 828 F.2d 1572, 1578, 4 USPQ 2d 1203, 1207 (Fed. Cir. 1987); see also Norton, 433 F.2d at 796, 167 USPQ at 546 ("Where fraud is committed, injury to the public through a weakening of the Patent System is manifest."). Antitrust liability can include treble damages. See 15 U.S.C. § 15(a) (1994). In contrast, the remedies for inequitable conduct, while serious enough, only include unenforceability of the affected patent or patents and possible attorney fees. See 35 U.S.C. §§ 282, 285 (1994). Simply put, Walker Process fraud is a more serious offense than inequitable conduct. In this case, the jury was instructed that a finding of fraud could be premised on "a knowing, willful and intentional act, misrepresentation or omission before the [PTO]." This instruction was not inconsistent with various opinions of the courts stating that omissions, as well as misrepresentations, may in limited circumstances support a finding of Walker Process fraud. See, e.g., Rolite, Inc. v. Wheelabrator Envtl. Sys., Inc., 958 F. Supp. 992, 1006 (E.D. Pa. 1997) (finding an allegation of "fraud by omission" in a Walker Process claim sufficient to overcome defendant's motion to dismiss); United States v. Ciba-Geigy Corp., 508 F. Supp. 1157, 1170, 211 USPQ 529, 542 (D.N.J. 1979) (stating, in the context of Walker Process: "A misrepresentation is material if the patent would not have issued 'but for' the omission"). We agree that if the evidence shows that the asserted patent was acquired by means of either a fraudulent misrepresentation or a fraudulent omission and that the party asserting the patent was aware of the fraud when bringing suit, such conduct can expose a patentee to liability under the antitrust laws. We arrive at this conclusion because a fraudulent omission can be just as reprehensible as a fraudulent misrepresentation. In addition, of course, in order to find liability, the necessary additional elements of a violation of the antitrust laws must be established. See Walker Process, 382 U.S. at 178, 147 USPQ2d at 407.
Such a misrepresentation or omission must evidence a clear intent to deceive the examiner and thereby cause the PTO to grant an invalid patent. See 433 F.2d at 794, 167 USPQ at 544 ("The fact misrepresented must be 'the efficient, inducing, and proximate cause, or the determining ground' of the action taken in reliance thereon.") (quoting 37 C.J.S. Fraud § 18 (1943)). In contrast, a conclusion of inequitable conduct may be based on evidence of a lesser misrepresentation or an omission, such as omission of a reference that would merely have been considered important to the patentability of a claim by a reasonable examiner. See J.P. Stevens, 747 F.2d at 1559, 223 USPQ at 1092. n8 A finding of Walker Process fraud requires higher threshold showings of both intent and materiality than does a finding of inequitable conduct. Moreover, unlike a finding of inequitable conduct, see, e.g., Molins PLC v. Textron, Inc., 48 F.3d 1172, 1178-79, 33 USPQ 2d 1823, 1826-27 (Fed. Cir. 1995), a finding of Walker Process fraud may not be based upon an equitable balancing of lesser degrees of materiality and intent. Rather, it must be based on independent and clear evidence of deceptive intent together with a clear showing of reliance, i.e., that the patent would not have issued but for the misrepresentation or omission. Therefore, for an omission such as a failure to cite a piece of prior art to support a finding of Walker Process fraud, the withholding of the reference must show evidence of fraudulent intent. A mere failure to cite a reference to the PTO will not suffice.
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n8 We recognize that this criterion reflects an older PTO rule in effect at the time the instant patent was prosecuted and that
the current PTO rule defines materiality differently. See Critikon, Inc. v. Balston Dickinson Vascular Access, Inc., 120 F.3d
1253, 1257, 43 USPQ2d 1666, 1669-70 (Fed. Cir. 1997) (quoting 37 C.F.R. § 1.56 (b)(2)(ii) (1996)).
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IV.
The district court observed that the Supreme Court, in footnote six of its PRE opinion, "left unresolved the issue of how 'Noerr applies to the ex parte application process,' and in particular, how it applies to the Walker Process claim." 930 F. Supp. at 1253 (quoting James B. Kobak, Jr., Professional Real Estate Investors and the Future of Patent-Antitrust Litigation, 63 Antitrust L.J. 185, 186 (1994)). The court also accurately pointed out that we have twice declined to resolve this issue. See FilmTec Corp. v. Hydranautics, 67 F.3d 931, 939 n.2, 36 USPQ2d 1410, 1415 n.2 (Fed. Cir. 1995), cert. denied, 136 L. Ed. 2d 24, 117 S. Ct. 62 (1996); Carroll Touch, Inc. v. Electro Mechanical Sys., Inc., 15 F.3d 1573, 1583 n.10, 27 USPQ2d 1836, 1845 n.10 (Fed. Cir. 1993). Therefore, after reviewing three opinions from the Ninth and District of Columbia Circuit Courts of Appeals, see Hydranautics v. FilmTec Corp., 70 F.3d 533, 537-38, 36 USPQ 2d 1773, 1777 (9th Cir. 1995); Whelan v. Abell, 310 U.S. App. D.C. 396, 48 F.3d 1247, 1255 (D.C. Cir. 1995); Liberty Lake Invs., Inc. v. Magnuson, 12 F.3d 155, 158-60 (9th Cir. 1993), the district court made its own determination that PRE's two-part test for a sham is inapplicable to an antitrust claim based on the assertion of a patent obtained by knowing and willful fraud. See 930 F. Supp. at 1253. We do not agree with that determination. PRE and Walker Process provide alternative legal grounds on which a patentee may be stripped of its immunity from the antitrust laws; both legal theories may be applied to the same conduct. Moreover, we need not find a way to merge these decisions. Each provides its own basis for depriving a patent owner of immunity from the antitrust laws; either or both may be applicable to a particular party's conduct in obtaining and enforcing a patent. The Supreme Court saw no need to merge these separate lines of cases and neither do we. Consequently, if the above-described elements of Walker Process fraud, as well as the other criteria for antitrust liability, are met, such liability can be imposed without the additional sham inquiry required under PRE. That is because Walker Process antitrust liability is based on the knowing assertion of a patent procured by fraud on the PTO, very specific conduct that is clearly reprehensible.
On the other hand, irrespective of the patent applicant's conduct before the PTO, an antitrust claim can also be based on a PRE allegation that a suit is baseless; in order to prove that a suit was within Noerr's "sham" exception to immunity, an antitrust plaintiff must prove that the suit was both objectively baseless and subjectively motivated by a desire to impose collateral, anti-competitive injury rather than to obtain a justifiable legal remedy. PRE, 508 U.S. at 60-61, 26 USPQ2d at 1646. As the Supreme Court stated:
First, the lawsuit must be objectively baseless in the sense that no reasonable litigant could realistically expect success on the merits. If an objective litigant could conclude that the suit is reasonably calculated to elicit a favorable outcome, the suit is immunized under Noerr, and an antitrust claim premised on the sham exception must fail. Only if challenged litigation is objectively meritless may a court examine the litigant's subjective motivation. Under this second part of our definition of sham, the court should focus on whether the baseless lawsuit conceals "an attempt to interfere directly with the business relationships of a competitor," through the "use [of] the governmental process--as opposed to the outcome of that process--as an anticompetitive weapon." . . . Of course, even a plaintiff who defeats the defendant's claim to Noerr immunity by demonstrating both the objective and the subjective components of a sham must still prove a substantive antitrust violation. Proof of a sham merely deprives the defendant of immunity; it does not relieve the plaintiff of the obligation to establish all other elements of his claim.
Id. (footnotes and internal citations omitted). Thus, under PRE, a sham suit must be both subjectively brought in bad faith and based on a theory of either infringement or validity that is objectively baseless. Accordingly, if a suit is not objectively baseless, an antitrust defendant's subjective motivation is immaterial. Id. In contrast with a Walker Process claim, a patentee's activities in procuring the patent are not necessarily at issue. It is the bringing of the lawsuit that is subjectively and objectively baseless that must be proved.
V.
As for the present case, we conclude that there exists substantial evidence upon which a reasonable fact finder could strip NP of its immunity from antitrust liability. In particular, there exists substantial evidence that the 1977 Book was fraudulently kept from the PTO during patent prosecution. n9 The jury could reasonably have found that the 1977 Book was fraudulently withheld and that it disclosed the claimed invention. First, the jury could reasonably have concluded that Branemark, through his Swedish patent agent, Barnieske, withheld the 1977 Book with the requisite intent to defraud the PTO. The initial disclosure to Barnieske, provided by Branemark's co-inventor, af Ekenstam, indicated that the studies described in the 1977 Book verified the utility of the claimed invention. While Barnieske did testify that he did not recall his thoughts during the prosecution of the patent and that he would have submitted the 1977 Book to the PTO if he had considered it relevant, the jury was free to disbelieve him. Barnieske could not explain, even in retrospect, why he deleted all reference to the 1977 Book. Importantly, the 1977 Book was thought by at least one inventor to be relevant, as evidenced by the initial disclosure to the patent agent, but it was inexplicably not later disclosed [**41] to the PTO. Also, as the author of the 1977 Book and an inventor, Branemark presumably knew of the book's relevance to the invention and could have directed Barnieske not to disclose the book to the PTO. Thus, the jury could properly have inferred that Branemark had the requisite intent to defraud the PTO based on his failure to disclose the reference to the PTO. Such a scheme to defraud is the type of conduct contemplated by Walker Process.
- - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - -
n9 Because we consider the conduct relating to the 1977 Book sufficient to uphold the jury's finding of fraud, we need not discuss 3I's allegations that Branemark fraudulently misrepresented the causal relationship between the claimed micropitted surface and osseointegration and fraudulently concealed the best mode of making and using the claimed invention from the PTO.
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Second, substantial evidence upon which a reasonable jury could have relied also indicates that the 1977 Book was sufficiently material to justify a finding of fraud. 3I's expert witness, Dr. Donald Brunette, testified that the SEMs of the 1977 Book depict dental implants having all the elements of the claims asserted by NP. Specifically, he explained how he had determined that the SEMs depict a "biologically flawless material" suitable for use as a dental implant. He also explained how he determined that the depicted micropits have diameters within the claimed range of approximately 10 to 1000 nanometers. Even Branemark, in this deposition testimony, conceded that it would not have been difficult to calculate the size of the micropits depicted in the 1977 Book, given the magnification factors provided in the captions to the SEMs. Accordingly, a reasonable jury could have found, based on the unambiguous claim language, that the 1977 Book anticipated the patent and that the examiner would not have granted the patent if he had been aware of the 1977 Book.
Third, the record indicates that a reasonable jury could have found that NP brought suit against 3I with knowledge of the applicants' fraud. A reasonable jury could have found that two of NP's then-officers, Dr. Ralph Green, Jr. and Mr. Mats Nilsson, were aware of the fraud based on Green's testimony that Nilsson told him: "If the Patent Office did not receive a copy of [the 1977 Book], and if that were true, then we would have a larger problem and that was fraud." Green's testimony also indicates that NP was aware that the 1977 Book was highly material and, in fact, likely rendered the patent invalid. Green testified that he, Nilsson, and Mr. George Vande Sande obtained a legal opinion from NP's attorney, Mr. David Lindley, who indicated that if "we were to sue anyone on the patent we would lose in the first round. . . . There was prior art, not the least of which was this textbook [the 1977 Book] that would invalidate the patent." Regarding NP's motion for a new trial, we have concluded that the court's instructions to the jury regarding fraud, to which NP did not object, substantially comport with the law. Specifically, the court emphasized to the jury that to strip NP of its immunity from the antitrust laws, 3I "must prove that the '891 patent was fraudulently . . . obtained by clear and convincing evidence." The court also pointed out that only "knowing, willful and intentional acts, misrepresentations or omission" may support a finding of fraud and that the jury should approach such a finding with "great care." As to reliance, the court instructed the jury that "materiality is shown if but for the misrepresentation or omission the '891 patent would not have been issued." These instructions were not legally erroneous. Because we conclude that the finding of Walker Process fraud was supported by substantial evidence and was based upon a jury instruction that was not legally erroneous or prejudicial, we affirm the denial of NP's motion for JMOL. NP was properly deprived of its immunity from the antitrust laws under Walker Process, and it could not have benefited from additional jury instructions regarding PRE or Noerr. The court's refusal to so instruct the jury therefore does not require a new trial. We have also considered NP's alternative arguments in support of its motion for a new trial, including its assertions that the district court erred in permitting Green to testify, in prohibiting Dr. Hodosh and Messrs. Vande Sande and Martens from testifying, in allowing 3I to present a theory of joint venture liability to the jury, and in impugning the credibility of NP's arguments before the jury. We do not find these arguments persuasive. The district court did not abuse its discretion or misapply the law of attorney-client privilege in making its evidentiary rulings, nor did it prejudice NP's substantive rights by allowing the jury to consider a joint venture theory of liability or by commenting on NP's arguments during the trial. Accordingly, the court did not abuse its discretion in denying NP's motion for a new trial.
CONCLUSION
The district court did not err in holding the '891 patent invalid as a matter of law at the close of NP's case-in-chief because NP itself introduced evidence that was fatal to the patent's validity. Likewise, the district court did not err in denying NP's motion for JMOL or a new trial on 3I's antitrust counterclaim. A reasonable jury, applying the correct law, could have found that the facts of this case were sufficient to constitute fraud within the meaning of Walker Process.
AFFIRMED
Miguel Torres v. Cantine Torresella, S.r.l.
(Unpublished Opinion)
808 F.2d 46, 1 USPQ 2d 148 (Fed. Cir., 1986)
Bissel, J.: Miguel Torres appeals from the decision of the United States Patent and Trademark Office Trademark Trial and Appeal Board (Board), No. 13,724 (May 24, 1986), granting summary judgment cancelling Torres' registration No. 641,512. We affirm.
Background
On February 12, 1957, Torres obtained registration No. 641,512 for the trademark "Las Torres" below a design depicting three castle-like towers. The trademark was registered for use on wine, vermouth, and champagne.
On September 7, 1976, Torres filed with the Patent and Trademark Office (PTO) an application for renewal of trademark No. 641,512 pursuant to section 9 of the Lanham Act. 15 U.S.C. § 1059 (1982). In the renewal application, Torres averred that the mark as registered in registration No. 641, 512 was still in use in interstate commerce for each of the goods specified in the registration: wine, vermouth, and champagne. Attached to the application was a specimen label on which the mark as registered was displayed. Torres was, in fact, not currently using the mark in the form as registered on that label, but was using the name "Torres" in conjunction with an altered design of three towers. He had used the altered mark since 1971, and at the time he filed for renewal, was using the altered mark only for wine.
S. Margherita S.P.A. (Margherita), a competitor of Torres, petitioned the Board to cancel Torres' registration No. 641,512 alleging inter alia that the registered trademark was not in use when Torres filed his renewal application and that he' knowingly made false statements to the PTO. Cantine Torresella S.R.L. (Torresella) was substituted for petitioner Margherita. Torresella then moved for summary judgment based on Torres' answers to interrogatories and answers to requests for admissions.
In opposition to the motion for summary judgment, Torres submitted an unsworn statement entitled "affidavit," in which he admitted that in 1971 he "dropped the use of the term LAS . . . and adopted the principal term TORRES over three towers design." The statement explained that he did not consider the change material and did not believe that the filing of the renewal application represented any fraud on the PTO.
The Board disagreed. It concluded as a matter of law that the changes to the mark that occurred in 1971 materially altered the mark as registered. It found that Torres knew or should have known that his statements in the renewal application were false. It concluded that the statements in the renewal application amounted to fraud on the PTO. Consequently, the Board granted the motion for summary judgment and cancelled Torres' registration.
Opinion
Torresella petitioned the Board for cancellation of Torres' registration pursuant to section 14 of the Lanham Act. 15 U.S.C. § 1064 (1982). Section 14 lists a number of grounds for cancellation of a registration of a mark that has been registered longer than five years. Of those grounds for cancellation, the only one Torresella has alleged is that Torres' "registration was obtained fraudulently." 15 U.S.C. § 1064(c). Fraud in obtaining renewal of a registration amounts to fraud in obtaining a registration within the meaning of section 14(c) of the Lanham Act, 15 U.S.C. § 1064(c). See Le Cordon Bleu, S.A. v. BPC Publishing Ltd., 451 F. Supp. 63, 72 n.14, 202 USPQ 147, 154 n.14 (SD NY 1978); Crown Wallcovering Corp. v. Wall Paper Manufacturers, Ltd., 188 USPQ 141 (TTAB 1975), G. B. Kent & Sons, Ltd. v. Colonial Chemical Corp., 162 USPQ 557 (TTAB 1969); accord 4A R. Callmann, The Law of Unfair Competition Trademarks and Monopolies § 25.45 n.15 (L. Altman 4th ed. 1983); 1 J. McCarthy, Trademarks and Unfair Competition § 20.15 D. (2d ed. 1984). Thus, the only issue we must address is whether the Board erred in entering summary judgment for Torresella on the issue of fraud.
Fraud in procuring a trademark registration or renewal occurs when an applicant knowingly makes false, material representations of fact in connection with his application. See Le Cordon Bleu, 451 F. Supp. at 72 n.14, 202 USPQ at 154 n.14; Schwinn Bicycle Co. v. Murray Ohio Manufacturing Co., 339 F. Supp. 973, 983, 172 USPQ 14, 21 (M.D. Tenn. 1971), aff'd, 470 F.2d 975 (6th Cir. 1972).
"The obligation which the Lanham Act imposes on an applicant is that he will not make knowingly inaccurate or knowingly misleading statements in the verified declaration forming a part of the application for registration."
Bart Schwartz International Textiles, Ltd. v. Federal Trade Commission, 48 C.C.P.A. 933, 289 F.2d 665, 669, 129 USPQ 258, 260 (CCPA 1961) The obligation to refrain from knowingly making false, material statements applies with equal force to renewal applications.
Section 9 of the Lanham Act, 15 U.S.C. § 1059 (a) (1982), states the requirements for renewal of a registration:
Each registration may be renewed for periods of twenty years from the end of the expiring period upon payment of the prescribed fee and the filing of a verified application therefor, setting forth those goods or services recited in the registration on or in connection with which the mark is still in use in commerce and having attached thereto a specimen or facsimile showing current use of the mark, or showing that any nonuse is due to special circumstances which excuse such nonuse and it is not due to any intention to abandon the mark. Such application may be made at any time within six months before the expiration of the period for which the registration was issued or renewed, or it may be made within three months after such expiration on payment of the additional fee herein prescribed.
An essential element of the application for renewal is the registrant's averment that the mark as registered is in current use for the goods covered by the registration or the reasons for the mark's nonuse. The purpose of this requirement, like that in section 8 of the Lanham Act, is "to remove from the register automatically marks which are no longer in use." Morehouse Manufacturing Corp. v. J. Strickland & Co., 56 C.C.P.A. 946, 407 F.2d 881, 887, 160 USPQ 715, 720 (CCPA 1969)(discussing the purpose of section 8).
With respect to the current use requirement, Torres admitted that in 1971 he "dropped the use of term LAS . . . and adopted the principal term TORRES over three towers design." Nevertheless, in his renewal application he stated that "he is the owner of Registration 641,512; that the mark shown therein is in use in interstate commerce; [and that] the attached specimen show[s] the mark as currently used." Clearly, under the circumstances, Torres knew or should have known that the mark as registered and the specimen submitted were not currently in use when he filed his renewal application.
Torres argues that the registered mark is not materially different from the form of the mark as now used in that TORRES and the three towers are the principal parts of both marks. Thus, any error in the renewal application was due to a misunderstanding on his part and not because of his fraudulent intent. In this respect, Torres says his case is similar to Morehouse Manufacturing v. J. Strickland & Co., 56 C.C.P.A. 946, 407 F.2d 881, 160 USPQ 715. This case is, however, readily distinguishable from Morehouse.
Morehouse dealt with a section 8 affidavit and an error of the registrant in submitting therewith its original label on which the goods were identified as "hair dressing" rather than its current label on which the goods were identified as "pressing oil" for hair. Morehouse, 107 F.2d at 886-88, 160 USPQ at 719-20. Section 8 does not require submission of a specimen of the mark or a description of the goods on which the mark is currently used. Support for an averment that the mark is in current use can be supplied in alternative ways. All that was critical to the validity of the section 8 affidavit was a correct averment that the mark was currently in use. In Morehouse the evidence demonstrated that that averment was true.
In contrast to section 8, section 9 does require the submission of a specimen showing current use of the mark and a list of the goods on which the mark is still in use. Unlike section 8, failure to submit a specimen showing current use and to specify those goods covered by the registration on which the mark is still in use is fatal to a section 9 application for renewal. The statutory requirements cannot be waived except on the grounds set forth in section 9 itself.
An additional basis for distinguishing Morehouse is that in Morehouse, although the old and new labels were slightly different, it was held that they both showed the same registered trademark. In Torres' case, not only was the label currently used different from the one submitted with the renewal application, the marks on the labels were clearly different as well. The Board held as a matter of law that the mark was materially altered and that the new display created a different commercial impression. We have no reason to disturb the Board's conclusion on this point. Thus, even if Torres had submitted the label currently in use, his renewal application would have been denied. The problem of fraud arises because Torres submitted a label that he knew or should have known was not in use that contained a mark clearly different from the one in use. In addition, he submitted an affidavit stating the mark was in use on wine, vermouth, and champagne when he knew it was in use only on wine.
If a registrant files a verified renewal application stating that his registered mark is currently in use in interstate commerce
and that the label attached to the application shows the mark as currently used when, in fact, he knows or should know that
he is not using the mark as registered and that the label attached to the registration is not currently in use, he has knowingly
attempted to mislead the PTO. The decision whether the current usage is not materially different from the mark as registered
despite the change must rest with the Board, not the trademark owner. Compare In re Holland, 737 F.2d 1015, 1019, 222
USPQ 273, 276 (Fed. Cir. 1984) ("It is the practice of the office to allow renewal on the basis of a label which presents the
mark in a somewhat different form from the form in which the mark is registered if the specimen does not show a material
alteration of the mark as registered.") On the facts of this case, we hold that the Board did not err in granting summary
judgment because the record clearly establishes that Torres committed fraud. The Board's decision is, therefore, affirmed.
Russ Berrie & Company, Inc. v. Jerry Elsner Co., Inc.
482 F. Supp. 980; 1980 U.S. Dist. LEXIS 9824; 205 USPQ 320
(SD NY, 1980)
MEMORANDUM OPINION AND ORDER
This case is before the Court on plaintiff's motion for preliminary injunction, Fed.R.Civ.P. 65(a), respecting claims of copyright infringement, 17 U.S.C. § 501 Et seq., and common law trademark infringement under the Lanham Act, 15 U.S.C. § 1125(a). Defendant cross moves for summary judgment on the copyright claims. Fed.R.Civ.P. 56. The Court has subject matter jurisdiction over the claims raised herein under 28 U.S.C. § 1338(a); personal jurisdiction over the defendant is uncontested and venue is proper in this forum. 28 U.S.C. § 1400(a); § 1391(b), (c).
Before a preliminary injunction will issue, the movant must demonstrate likely irreparable harm and either probable success on the merits or serious litigable questions going to the merits coupled with a balance of hardships tipping decidedly in the movant's favor. e.g., Jackson Dairy, Inc. v. H. P. Hood & Sons, 596 F.2d 70, 72 (2d Cir. 1979). Summary judgment, of course, requires that there is no genuine issue as to any material fact so that the Court may enter judgment as a matter of law. Rule 56(c).
For the following reasons, I conclude that plaintiff is entitled to a preliminary injunction on its Lanham Act claims; and that defendant is entitled to summary judgment dismissing the copyright infringement claims.
I. FINDINGS OF FACT
Plaintiff Russ Berrie & Co., Inc. ("Berrie"), a New Jersey corporation with its principal place of business in that State, is the second largest manufacturer of stuffed toy animals in the United States. In this suit, Berrie charges defendant Jerry Elsner Co., Inc. ("Elsner"), a medium sized competitor incorporated in New York, with infringing three of its copyrighted plush toy designs a stuffed Santa Claus figure, style # 195; a plush Christmas teddy bear, trimmed and capped in red, style # 181; and a thumb-sucking stuffed gorilla, style # 595. Elsner's use of the name "Congo" in connection with sales of the latter toy is also alleged to infringe Berrie's trademark "Gonga" used for its gorilla. Santa and Christmas Bear Berrie is the holder of certificates of copyright registration, issued September 12, 1979, and bearing numbers V.A. 33-376 and V.A. 33-377, respectively, for its Santa and Christmas bear. Fn 3 Both toys were conceived by Berrie's design department in February, 1978, executed by Berrie's manufacturing contractors in the Orient, and first published on September 8, 1978. The toys bear the requisite notice of copyright when offered for sale.
Footnote 3. The copies of plaintiff's registrations respecting Santa and the Christmas bear which have been submitted to the Court, Complaint Exhibits D & F, contain what is obviously an inadvertent error that apparently has gone unnoticed by the parties. Certificate V.A. 33-376 was issued for plaintiff's Santa, style # 195. Yet the nature of the work is described as a soft sculpture of Christmas bear. Likewise certificate V.A. 33-377, issued for "Jolly," the Christmas bear, style # 181, describes the subject work as a soft sculpture of Santa Claus bean bag. The applications were filed on the same date, and obviously together as is evident from the consecutive registration numbers. Apparently, plaintiff's filing agent transposed the "nature of work" statements. While this error may require correction of the registration statements, it does not affect the validity of the copyrights. 1 M. Nimmer, Nimmer on Copyright § 94 ("Nimmer").
Defendant Elsner also puts out a stuffed Santa figure and a Christmas bear. One accused toy, Elsner's 1979 Santa, style # 823, is much like Santa figures in its product line since 1976 and 1977, with some variations in ornamentation and definition of the limbs. Elsner's accused Christmas bear, style # 832, is a seasonal version of a stuffed teddy that defendant has produced since 1970. Defendant's traditional teddy is dark brown in color. When the Christmas bear was made up in that color originally, the dark brown did not blend properly with the red body and hat given the Christmas version. Accordingly, defendant's president and founder, Jerry Elsner, directed that the Christmas bear be made in a beige color. Based on its 1979-80 wholesale catalogue, plaintiff's Santa and bear sell for $ 21 per dozen. Defendant's current price list shows its Santa wholesaling for $ 24 per dozen and its bear for $ 28.80 per dozen.
The Gorillas
In 1978, Berrie adopted and began using the name "Gonga" as a trademark for its stuffed gorilla. Berrie advertises its toy under that mark and, since November 1978, has sold its gorilla nationwide with the trademark "Gonga" appearing both on the label affixed to the toy and on a wooden plaque hanging around the gorilla's neck.
Berrie's Gonga is a copy of a pre-existing uncopyrighted work, a Japanese gorilla named "Gori-Gori." On a trip to the Orient in April 1978 taken by plaintiff's president and founder, Russell Berrie, and its chief designer Beverly Cerepak, the latter purchased one of the Japanese gorillas in Hong Kong. Mr. Berrie then brought the gorilla to his Taiwanese manufacturer, Sang Lan Enterprises, and requested that a thumb-sucking Berrie gorilla be made, but with certain changes. Mr. Berrie recollects that the gorilla he viewed in 1978 lacked eyebrows, and had a brown and white nose. Mr. Berrie's directions to Sang Lan were to change the Japanese gorilla's plush covering and stuffing; produce a somewhat smaller "bean bag" version; add eyebrows; eliminate the ball and chain that the Japanese gorilla wore around one ankle; use a neck plaque reading "Beware, Gonga Loves You"; alter the skin tone and facial dimensions; and paint the nose all brown. Sang Lan thereafter produced the original versions of plaintiff's Gonga, with notice of copyright printed on the labels affixed to the toys. Subsequently, Berrie determined that it needed an additional manufacturing source for its Gonga. Sometime prior to September 1978, Berrie sent the Sang Lan Gonga to a second manufacturer, Good Choice Co., Ltd. of Taiwan, to solicit that company's samples of the product. The Good Choice product proved unsatisfactory, and Berrie ultimately discontinued Good Choice as a supplier of Gonga. Berrie first published its Gonga on November 14, 1978, by selling the item with the requisite copyright notice. An application for copyright therein was made in April 1979. Although specifically directed to provide such information, the application failed to disclose that Berrie's Gonga was a derivative work based on the pre-existing public domain Japanese "Gori-Gori." [Footnote 4] On the basis of Berrie's application, a certificate of copyright registration V.A. 25-275 was subsequently issued, effective February 5, 1979.
Footnote 4: The copyright application form requests the following information at Item 6: "6. COMPILATION OR DERIVATIVE WORK: . . . "(PREEXISTING MATERIAL): (Identify any preexisting work or works that this work is based on or incorporates) . . . "(MATERIAL ADDED TO THIS WORK): (Give a brief, general statement of the material that has been added to this work and in which copyright is claimed.)" Berrie indicated that Item 6 was not applicable to its claim. See Complaint Exhibit B. The purpose of Item 6 on the application form clearly is to permit the Copyright Office to make a determination "whether or not the material being offered does or does not have that degree of originality required for a valid copyright. To do this, the Copyright Office must know what is in the public domain, otherwise, it cannot evaluate and decide whether "the author, through his skill and effort, has contributed a distinguishable variation from the older works.' " Vogue Ring Creations, Inc. v. Hardman, 410 F. Supp. 609 (D.R.I. 1976).
In October 1977, Jerry Elsner visited Japan, and like Russell Berrie, was taken with a thumb-sucking Japanese gorilla, wearing a wooden neck plaque that read "Danger Gori-Gori For Japan." Mr. Elsner obtained a brochure from the selling company at that time which illustrated the gorilla he had seen. The Japanese Gori Gori on the market in 1977, as is evident from that brochure, had eyebrows, an all brown nose, and wore a ball and chain around its ankle. In or about October 1978, on a visit to his Taiwan supplier, Good Choice Co. Ltd., Mr. Elsner was offered a stuffed gorilla similar to the Japanese item he had seen in 1977. Good Choice apparently represented that the item it was offering was a copy of the Japanese gorilla, which was in the public domain. This was confirmed recently in a letter from Good Choice to Elsner dated September 15, 1979. The Good Choice gorilla was offered in three colors and minus the neck plaque and ankle shackles. Good Choice's catalogue depicting its gorilla, and an actual Good Choice gorilla have been submitted. Affixed to the latter is a label identifying Good Choice as the manufacturer; no copyright notice is included. Mr. Elsner states that to his knowledge the Japanese Gori Gori has been sold in this country since 1977. A specimen recently purchased at F.A.O. Schwarz, bearing a Sakai & Co., Ltd., Japan, label, without copyright notice, and with a neck plaque but no ball and chain, is in evidence. Elsner's accused gorilla, style # 894, is manufactured by Good Choice. The Elsner gorilla is sold without the wooden neck plaque found on both the Japanese Gori Gori made by Sakai, and the Berrie gorilla. However, Elsner sells its gorilla to the trade under the name "Congo," although that name does not appear on the product itself. Apparently, the "Congo" designation is not used at the retail level. Both plaintiff's and defendant's gorillas currently wholesale at $ 36 per dozen. The competing gorillas are marketed through similar channels of trade. Both parties utilize catalogues to sell to wholesale customers and the competing gorillas were both offered for sale to the trade at the New York Gift Show in August 1979. By letter of August 15, 1979 Berrie put Elsner on notice of the alleged infringements which form the basis of this suit.
II. THE COPYRIGHT CLAIMS
The Applicable Law In the copyright context, an infringement claim turns on two elements: plaintiff must establish its ownership of a valid copyright and defendant's copying. Novelty Textile Mills v. Joan Fabrics Corp., 558 F.2d 1090, 1092 (2d Cir. 1977) (citing 2 Nimmer on Copyright § 141, p. 611 (1976)). A prima facie case, sufficient if unrebutted to support interlocutory relief, is made out on the first element by submission of a certificate of copyright registration, which carries with it a presumption of copyright validity and ownership, and is prima facie evidence of the facts stated therein. Id. at 1092 n.1; 17 U.S.C. § 410(c). Success is likely on the second necessary element if, based on the average lay observer test, see text at p. 986, Infra, there is substantial similarity between the copyrighted and accused works, and some evidence that defendant had access to plaintiff's work. Novelty, supra. These two factors substantial similarity and access are the "Sine qua non to a finding of copying," Id. at 1092 n.2, and establish a prima facie case on the second element. It then becomes incumbent upon defendant to rebut that prima facie case by demonstrating, for example, its own independent creation of the accused article or its copying not of plaintiff's product but of work in the public domain. Turning to the particulars of this case, the parties are on common ground as to the relevant legal principles. Both sides agree that plush toys such as are here involved are copyrightable as sculptural works of art. 17 U.S.C. § 102(a) (5) (Act of 1976) (predecessor section previously codified as § 5(g) of 1909 Act); 37 C.F.R. § 202.3(a)(iii); See, e.g., Uneeda Doll Co., Inc. v. Goldfarb Novelty Co., Inc., 373 F.2d 851 (2d Cir. 1967); Samet & Wells, Inc. v. Shalom Toy Co., Inc., 429 F. Supp. 895 (E.D.N.Y .1977), Aff'd, 578 F.2d 1369 (2d Cir. 1978); Fisher-Price Toys v. My-Toy Co., Inc., 385 F. Supp. 218 (SD NY1974). Both agree that a validly obtained statutory copyright protects the holder thereof against copying by others, not of the idea underlying the work but rather of the particular expression of that idea embodied in the copyrighted item. E. g., Reyher v. Children's Television Workshop, 533 F.2d 87 (2 Cir. 1976); Peter Pan Fabrics, Inc. v. Martin Weiner Corp., 274 F.2d 487 (2d Cir. 1960). Both sides agree that works in the public domain, i. e. uncopyrighted works, may be freely copied by all, but that one may bring sufficiently original variation to a public domain work to render the new version copyrightable in its own right as a derivative work. 17 U.S.C. § 103; E. g., Alfred Bell & Co. v. Catalda Fine Arts, Inc., 191 F.2d 99, 102-03 (2d Cir. 1951). In such circumstances, copyright protection extends only to the new material contributed to the prior work. 17 U.S.C. § 103; 1 M. Nimmer, Nimmer on Copyright § 41 ("Nimmer"); Millworth Converting Corp. v. Slifka, 276 F.2d 443 (2d Cir. 1960); Lauratex Textile Corp. v. Citation Fabrics Corp., 328 F. Supp. 554 (SD NY 1971); Concord Fabrics Inc. v. Generation Mills, Inc., 328 F. Supp. 1030 (SD NY1971); Blazon, Inc. v. DeLuxe Game Corp., 268 F. Supp. 416 (SD NY 1965). Santa and Christmas Bear Plaintiff has made a prima facie showing of ownership of valid copyrights on the Santa and Christmas bear, by virtue of its certificates of copyright registration as to these two items. 17 U.S.C. § 410(c) (Act of 1976). I reject defendant's suggestion (gleaned from statements in Mr. Berrie's original affidavit which were subsequently clarified in his reply affidavit) that Berrie's bear may have been a new version of a prior uncopyrighted work sold by Berrie. The copyright registrations stand unrebutted and plaintiff is entitled to the presumption of validity and ownership that flows therefrom. Plaintiff, however, does not succeed on the second aspect of the claim, that is, defendant's copying of its Santa and/or bear. Berrie has failed to adduce any evidence of access, and argues instead that in certain circumstances proof of access may be dispensed with, citing Heim v. Universal Pictures Co., Inc., 154 F.2d 480 (2d Cir. 1946) and Jones v. Supreme Music Corp., 101 F. Supp. 989 (SD NY 1951). These two cases in turn relied on Arnstein v. Porter, 154 F.2d 464 (2d Cir. 1946). In his majority opinion (concurred in by Judge Learned Hand), Judge Frank wrote in relevant part:
"As to the first (element of an infringement claim) copying the evidence may consist (a) of defendant's admission that he copied or (b) of circumstantial evidence usually evidence of access from which the trier of the facts may reasonably infer copying. Of course, if there are no similarities, no amount of evidence of access will suffice to prove copying. If there is evidence of access and similarities exist, then the trier of the facts must determine whether the similarities are sufficient to prove copying. . . . If evidence of access is absent, the similarities must be so striking as to preclude the possibility that plaintiff and defendant independently arrived at the same result." Id. at 468 (emphasis added). Having taken on the burden of showing Striking similarity, plaintiff in my view fails to establish even Substantial similarity."
"Substantial similarity' is to be determined by the "ordinary observer' test. . . . (T)here is substantial similarity where "the ordinary observer, unless he set out to detect the disparities, would be disposed to overlook them, and regard their aesthetic appeal as the same.' Peter Pan Fabrics, Inc. v. Martin Weiner Corp., 274 F.2d 487, 489 (2d Cir. 1960). . . . (T)he test (is) "whether an average lay observer would recognize the alleged copy as having been appropriated from the copyrighted work.' Ideal Toy Corp. v. Fab-Lu Ltd., 360 F.2d 1021, 1022 (2nd Cir.) And, of course, by definition "(the) copying need not be of every detail so long as the copy is substantially similar to the copyrighted work.' Comptone Co. v. Rayex Corp., 251 F.2d 487, 488 (2d Cir. 1958); United Merchants & Manufacturers, Inc. v. K. Gimbel Accessories, Inc., 294 F. Supp. 151, 154 (SD NY 1968)."
Novelty, supra, 558 F.2d at 1093 (footnotes omitted).The competing Santas to be sure have something of the same aesthetic appeal. Both wear the traditional red suit and floppy cap, trimmed in white, black boots and white beard. Both sport the requisite "nose like a cherry." But, these features are common to all Santas, and various of the Elsner Santas that predated Berrie's copyrighted version possessed similar details. What sets the toys apart rather strikingly are their facial features. Elsner's is a wide-eyed, almost startled looking Santa; Berrie's a sleepy-eyed more whimsical fellow. The average observer would note the difference immediately. I conclude that the Santas are not substantially similar; A fortiori they are not so strikingly similar as to preclude the inference that both parties arrived independently at the same result. And even were such an inference appropriate, it has been persuasively overcome by the credible evidence of defendant's independent creation. I find Elsner's Santa to be a direct descendant of Santas in its own line, which long predated the first publication of Berrie's copyrighted Santa.
Additionally, whatever the quantum of similarity between the Santas, any inference of copying is materially weakened absent any proof regarding access, for at least two of the reasons alluded to by Professor Nimmer:
"Ordinarily in order to prove copying by the defendant, the plaintiff must prove access as well as substantial similarity. If, however, the similarity between plaintiffs (sic) and defendant's works is sufficiently striking and substantial the trier of fact may be permitted to infer copying notwithstanding the plaintiff's failure to prove access. It has been said, however, that absent access the similarities must be so striking as to preclude the possibility that defendant independently arrived at the same result. Furthermore, Even if there is a very striking similarity between the two works, copying may not be inferred without proof of access in the following circumstances: if both plaintiffs (sic) and defendants (sic) works are trite or commonplace ; if plaintiff fails to establish prior creation; Or if the identity between the two works may arise from identical functional considerations rather than from copying ; or perhaps where the defendant offers direct and highly persuasive evidence that access could not have occurred."
2 Nimmer § 142.2 (footnotes omitted) (emphasis added). The Christmas bears present much the same situation. The similarities between them end with the observation that both are small stuffed teddy bears wearing red suits and caps. They differ in construction, facial features, coloring and trim. Striking similarity is not present; and no proof of access has been offered. And while substantial similarity presents a closer question, I am persuaded that Elsner independently created its Christmas teddy without reference to Berrie's work and on the basis of its own preexisting bear. In sum, I conclude that defendant is entitled to summary judgment dismissing the claims of infringement as to Santa and the Christmas bear. Alternatively, I hold that absent some evidence respecting access, plaintiff has failed to demonstrate likely success on the issue of copying. Absent such a prima facie showing, a preliminary injunction should not issue, Mattel, Inc., supra, 296 F. Supp. at 1026; G. P. Putnam's Sons v. Lancer Books, Inc., 239 F. Supp. 782 (SD NY1965); especially where as here the showing as to irreparable harm and the balance of hardships is minimal. Mr. Berrie's affidavit, the only evidence on this issue, contains nothing more than generalized statements respecting possible lost profits and good will. Compare Novelty, supra, 558 F.2d at 1092, 1094 (evidence of continuing lost sales of $ 11,000 per week beginning with the introduction of defendant's product). Plaintiff's suggestion that its wholesale customers might be harmed by their competitor's sale of cheaper "knocked-off" versions of Berrie's works is persuasively overcome by the fact that Elsner's Santa and bear sell at higher wholesale prices than do Berrie's. Elsner is a well-established ongoing business with substantial tangible assets. Defense counsel represents that his client is financially able to respond in damages.
While the right to an injunction normally follows from a finding of infringement, in this case, assuming the infringement issue to be reopened and plaintiff ultimately to succeed, Elsner's sales of the accused items would be capable of precise ascertainment as would Berrie's expected profits on that volume of sales. Finally, due to the timing of the litigation, Berrie's losses during the 1979 Christmas season attributable to the alleged infringement are now a Fait accompli. The hardships do not tip in Berrie's favor. For these reasons as well, I would be inclined to deny interlocutory relief on this aspect of the case. The Gorillas Berrie fares no better on its copyright claim as to Gonga. The prima facie case established by submission of the federal copyright registration has been successfully rebutted by the credible evidence that Berrie's gorilla was itself a copy of a public domain work. E. g. R. Dakin & Co. v. A. & L. Novelty Co., Inc., 444 F. Supp. 1080 (E.D.N.Y. 1978); Covington Fabrics Corp. v. Artel Products, Inc., 328 F. Supp. 202 (SD NY 1971); Gardenia Flowers, Inc. v. Joseph Markovits, Inc., 280 F. Supp. 776 (SD NY 1968); 2 Nimmer § 139.2. Yet plaintiff's application failed to disclose this crucial fact, which was known to Mr. Berrie at the time. The only explanation proffered for that material omission is the following:
"A small number of designs are created by changing pre-existing items, and it is, and has always been, my belief that when we make a number of changes in such a pre-existing item, the newly designed item is considered to be our "wholly original' design, and it is in that context I considered "Gonga.' Therefore, our company through our agent, filed an application to register the copyright "Gonga', and it never occured (sic) to me to tell him about the existence of the prior Japanese stuffed gorilla, because as I have just said, I considered by design to be wholly original."
Russell Berrie Reply Affidavit at P 9.Mr. Berrie's asserted belief that Gonga was his wholly original design is disingenuous given the striking similarity between Gonga and the Japanese Gori Gori. Based on the tangible evidence presented by Elsner as to the ornamentation of the Japanese gorilla as early as 1977, I cannot credit Mr. Berrie's recollection that the Gori Gori he saw and "modified" in 1978 lacked eyebrows and brown nose. While I do accept Mr. Berrie's assertions that he made use of a different plush and stuffing; changed the wording of the neck plaque; and made the all but imperceptible alterations in skin tone and facial dimensions, those changes, even crediting the eyebrow and nose contentions, were surely not enough to support a good faith belief that Berrie had created a wholly original design. Nor am I persuaded that such modifications are of sufficient originality to support a copyright. Although the necessary quantum of originality is minimal
"All that is needed to satisfy both the Constitution and the statute is that the "author' contributed something more than a "merely trivial' variation, something recognizably "his own.' Originality in this context "means little more than a prohibition of actual copying.' No matter how poor artistically the "author's' addition, it is enough if it be his own."
Alfred Bell & Co., supra, 191 F.2d at 102-03. Berrie's contributions to the pre-existing work may well fall on the "merely trivial" side of the line. Where as here the question of originality is a close one, a decision to grant or deny protection made in the first instance by the agency charged with administering the copyright laws would have been highly persuasive evidence of copyright validity. Cf. Amer. Home Products, supra, 589 F.2d at 106 & n.2. The presumption of validity attaching to copyright registration is of course a function of judicial deference to the agency's expertise. Here, however, the Copyright Office had no opportunity to pass on plaintiff's claim accurately presented. The knowing failure to advise the Copyright Office of facts which might have occasioned a rejection of the application constitute reason for holding the registration invalid and thus incapable of supporting an infringement action, 1 Nimmer § 94, or denying enforcement on the ground of unclean hands, Id. § 149.2; See Vogue Ring Creations, Inc. v. Hardman, 410 F. Supp. 609, 614-16 (D.R.I. 1976); See also Hobeau Enterprises, Inc. v. Printsiples Fabric Corp., 77 F.R.D. 1, 2 (S.D. N.Y. 1977); Ross Products, Inc. v. N. Y. Merchandise Co., 242 F. Supp. 878, 879-80 (SD NY1965) and 233 F. Supp. 260, 264 (SD NY 1964); Internat'l Biotical Corp. v. Associated Mills, Inc., 239 F. Supp. 511 (N.D.Ill. 1964); Wrench v. Universal Pictures, 104 F. Supp. 374 (SD NY1952). Cf. Advisers Inc. v. Wilsen-Hart, Inc., 238 F.2d 706, 708 (6th Cir. 1956) ("innocent misstatement . . . in the affidavit and certificate of registration, unaccompanied by fraud . . . does not invalidate the copyright, nor is it thereby rendered incapable of supporting an infringement action"); Champion Map Corp. v. Twin Printing Co., 350 F. Supp. 1332 (E.D .N.C .1971) (merely technical omissions insufficient to deny enforcement); Freedman v. Milnag Leasing Corp., 20 F. Supp. 802 (SD NY 1937) (test is substantial and good faith compliance). While questions of a party's intent usually ought not be decided on the basis of affidavits, Ross, supra, 242 F. Supp. at 880, the underlying facts in this case are clear; it is only the implications to be drawn from those facts that are disputed. Here, Mr. Berrie concedes both knowledge of the pre-existing work and that it was in the public domain at the time plaintiff's application was filed; a conscious policy on his part not to disclose to the Copyright Office such pre-existing works on which his designs are based; and actions consistent with that policy in respect of the Gonga application. I am compelled to the conclusion that Mr. Berrie intentionally withheld material information from the Copyright Office in the face of a specific and clear direction to disclose it. In these circumstances, I decline to enforce the resulting copyright. n6
Footnote 6. The issue of the wooden neck plaque feature is instructive. It is clear to me that the public domain gorilla wore such a sign in 1977. Mr. Berrie first saw that gorilla in 1978. The plaques adorning the Japanese gorilla and Gonga are identical except for their message. In his affidavits, Mr. Berrie carefully avoids stating that the neck plaque was his creation. Yet Berrie's copyright application clearly carries this implication. One seeking to avoid infringement by consulting that application would have to assume that the neck plaque was protected. In point of fact all but Berrie's particular message is in the public domain. A proper application would have revealed this. By virtue of the omissions in its application, plaintiff has effectively arrogated to itself rights which it does not legitimately possess.
And even were I to assume the copyright enforceable and Berrie's contributions of sufficient originality, a finding of infringement would of necessity have to turn on defendant's copying of the type of plush used by plaintiff (which is apparently standard to the industry); the lack of ball and chain (an obviously separable feature now also missing on the public domain gorilla); and certain unspecified facial features. Elsner's gorilla does not in fact "copy" the neck plaque and skin tone of Gonga, and I have found that Berrie was not the originator of the eyebrows and brown nose. Under the familiar principle of copyright law discussed earlier, the derivative author receives protection only for his original contributions. Both Professor Nimmer and recent caselaw in this district reject the notion that a derivative work copyright protects against copying the public domain aspects of that work. 1 Nimmer § 41; Reyher v. Children's Television Workshop, 387 F. Supp. 869 (SD NY 1975), Aff'd on other grounds, 533 F.2d 87 (2d Cir.), Cert. denied, 429 U.S. 980, 97 S. Ct. 492, 50 L. Ed. 2d 588 (1976). Professor Nimmer's view is of particular force here, where plaintiff in no sense functioned as a researcher or compiler of arcane, albeit public domain materials. In my view neither the use of similar plush nor the elimination of the ball and chain are sufficient to support a charge of infringement and I am unable to discern any distinguishable variations in facial dimensions between the public domain work and Berrie's Gonga. Furthermore, while on the copying aspect of the Gonga claim there is both striking similarity and evidence of access, it is equally plausible that Elsner's supplier Good Choice copied the public domain gorilla rather than Gonga. Good Choice represented as much to Mr. Elsner originally and subsequently confirmed that again in a recent letter to defendant. Thus, I would not draw the inference that copying was from plaintiff's rather than the public domain work.
Finally, there is a serious element of inequity in preventing Elsner from marketing its gorilla when the virtually identical public domain Gori Gori is freely sold. In sum, even were I inclined to overlook Berrie's erroneous application respecting Gonga, on this state of the record plaintiff's likelihood of success on the Gonga claim is minimal at best, and no countervailing hardship factor is present. For the reasons stated, plaintiff's motion to enjoin copyright infringement of it Gonga gorilla is denied and defendant's motion for summary judgment on that claim is granted.
III. THE LANHAM ACT CLAIM
This aspect of the litigation does not require extended discussion. Both the facts and the law are clear. The claim is that defendant's use of the name "Congo" in connection with sales of its gorilla infringes plaintiff's common law trademark "Gonga." I hold that it does.
* * *
Defendant's name Congo similar both verbally and visually to plaintiff's mark used on an identical and directly competing product sold through the similar channels of trade and directed to the same set of potential purchasers, is confusingly similar to plaintiff's mark.
***
Accordingly, Berrie is entitled to an injunction requiring Elsner to refrain from using the name Congo in connection with the promotion and sale of its stuffed gorilla. On the present record, no security for the issuance of the injunction appears necessary. The parties are directed to settle an appropriate order on five (5) days' notice. In connection therewith, counsel may address the issue of security. They are also to advise the Court whether trial on the merits of the trademark claim is necessary and, if so, the nature of the issues to be raised and the extent of contemplated discovery.
IV.
CONCLUSION
1. Plaintiff's motion for a preliminary injunction respecting its three claims of copyright infringement (first, second, and third causes of action) is denied.
2. The Clerk of the Court is directed to enter summary judgment in defendant's favor dismissing plaintiff's first, second and third causes of action.
3. Plaintiff's motion for preliminary injunction on its fourth, fifth and sixth causes of action is granted in accordance with Part III of this opinion.
The parties are to settle an appropriate order on five (5) days' notice. Unless further proceedings are contemplated, a judgment and order of permanent injunction will issue; and the action will be deemed terminated.
It is So Ordered.
qad. inc. v. ALN Associates, Inc.
770 F. Supp. 1261, 19 USPQ2d 1907 (N.D. Ill., 1991)
see also earlier opinion at 757 F Supp 901, 18 USPQ 2d 1122 (ND Ill, 1991)
Shadur, J. This action has been brought by qad. inc., Karl Lopker and Pam Lopker (collectively for convenience "qad") against ALN Associates, Inc., Sally Allen, Mike Allen and Ronald Whiteford (collectively for convenience "ALN") for various breaches of contract, copyright infringement, misappropriation of trade secrets, unfair competition (under both federal and state law) and making false representations to qad. ALN has in turn launched its own claims against qad. All the claims stem from a basic dispute as to competing computer software distributed by the parties.
Only one of qad's claims is now at issue: its contention that ALN's software MFG + (also referred to as "MFG/PLUS") infringes on qad's copyright in a software program called MFG/PRO. Count III of qad's First Amended Complaint (the "Complaint") asserts:
20. . . . The MFG/PRO computer programs embody and reflect imaginative and original forms of expression which distinguish them from software offered by other companies and which have helped make MFG/PRO computer programs successful.
21. The design, structure, sequence, organization and graphic interfaces of the MFG/ PRO computer programs embody and reflect forms of expression original to qad.
qad further alleges that ALN:
continuously and willfully infringed qad's copyrights in MFG/PRO Software by copying the Software and marketing it as ALN's software . . .
and that:
Substantial portions of the computer software programs marketed by ALN as ALN software are the same as and/or substantially similar to the qad MFG/PRO Software in their elements, code, design, structure, sequence, organization and graphic interfaces.
ALN now moves under Rule 56 for summary judgment as to its affirmative defense to Count III, claiming that qad misused its copyright of MFG/ PRO and that it should therefore be prevented from obtaining relief against ALN for copyright infringement. For the reasons stated in this memorandum opinion and order, ALN's motion is granted.
Facts
qad, which is incorporated and has its principal place of business in California, has as its principals Karl and Pam Lopker (also California citizens). ALN is an Indiana corporation with its principal place of business in Indiana, and it also does business within the Northern District of Illinois. Sally and Mike Allen are officers of ALN and are also Indiana citizens. Another Indiana citizen, Ronald Whiteford, is a principal of ALN.
MFG/PRO is a software program owned and distributed by qad to supersede another software program originally authored by Hewlett-Packard Corporation ("Hewlett-Packard") and designated MFG/250 and FIN/250 ("HP250 software"). Both HP250 and MFG/PRO software perform manufacturing and accounting functions, although MFG/PRO performs other functions as well. HP250 was written in HP-Basic and runs only on Hewlett-Packard small business computers. Its manufacturing component was created in 1978 and the accounting component in 1981.
qad developed MFG/PRO (which it completed in 1986) in the PROGRESS Registered TM language to run on MSDOS, UNIX and XENIX operating systems. Before it created MFG/PRO, qad had been a distributor of HP250 software since about 1980. And before writing MFG/PRO, some personnel at qad had access to the source code of HP250.
When marketing MFG/PRO in 1986, qad represented that MFG/PRO was an "updated" version of its software that ran on Hewlett-Packard small business computers. qad copied much of the selection, order, arrangement and definitions of fields from HP250 to MFG/PRO. Indeed, a qad notebook entry dated November 10, 1985 contained Pam Lopker's handwritten instruction to "copy HP250." That entry also contains a list of files from MFG/PRO and the corresponding files from HP250. MFG/PRO and HP250 employ strikingly similar techniques to log the development, modifications and changes. Both MFG/ PRO and HP250 share program naming conventions such as those that begin with "ar," "ap", "gl", "mf" and "cm_". Nearly 75% of the manufacturing functions of the HP250 system appear in the MFG/ PRO system. MFG/PRO and HP250 use substantially similar reorder strategies and identical average usage formulas of stockroom parts. They also use similar documentation styles.
qad's United States Copyright Registration TX 2-257-814 ("'814 Registration"), later corrected as TXu 399-204 ("'204 Registration"), covers MFG/ PRO Version 1.2. Neither filing discloses that MFG/ PRO was based upon or incorporated any portion of HP250 software. Although it is clear that MFG/PRO is a more advanced program than HP 250, it is also unmistakable that it is a work derivative from HP250.
Between April 6 and May 3, 1989 this Court conducted a hearing (the "Hearing") on qad's motion to restrain ALN's use of MFG/PRO, or at least those portions of MFG + that were alleged to have been derived from MFG/PRO. That resulted in a Preliminary Injunction Order (the "Order") of July 17, 1989:
(1) restraining ALN Associates, Inc. ("ALN"), Sally Allen and Mike Allen from violating any of qad's exclusive rights in its copyrighted MFG/PRO computer software, as specified in 17 U.S.C. § 106, by selling, copying, preparing a derivative work, distributing, publicly performing or displaying the qad copyrighted MFG/PRO computer software, the ALN software program known as MFG/PLUS (sometimes referred to as SLICK, Manufacturing +, etc.) or any other software program, documentation or related materials based on or derived form qad's copyrighted MFG/PRO software (17 U.S.C. § 101 and § 106); and
(2) ordering delivery to qad's counsel of all copies of qad's MFG/PRO software and manuals in defendants' possession with the exception of one copy to be retained in the custody of defendants' counsel. Those restrictions were based on testimony by former employees of ALN and by an expert, Richard Rubenstein ("Rubenstein"), who testified that ALN must have directly copied certain portions of MFG/PRO (Order at 2). Rubenstein's testimony was critical to qad's case, for it showed that many field and program names as well as certain instructions were common to MFG/PRO and MFG +.
Now ALN has proved that many of the same names and other aspects of MFG/PRO are found in HP250, the program that qad copied. Both qad's copying of HP250 into MFG/PRO and its use of that material -- over which it had no copyright -- to gain an injunction against ALN are central to the resolution of this motion.
Copyright Law
Article I, Section 8, clause 8 of the United States Constitution gives Congress authority:
To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.
Those two closely related privileges of copyright and patent have somewhat parallel histories (see Lasercomb America, Inc. v. Job Reynolds 911 F.2d 970, 974-75, 15 USPQ2D 1846 (4th Cir. 1990)). Although the intellectual property at issue in this case is that of copyright, many of the principles used in patent cases apply here with equal force. That is especially true given the nature of computer software -- as explained in Note, Clarifying the Copyright Misuse Defense: The Role of Antitrust Standards and First Amendment Values, 104 Harv. L. Rev. 1289, 1299 (1991):
Computer software, however, differs from other works of authorship in ways that make it more like a patented invention. What users value most in a computer program is rarely the expression contained in its coded instructions; rather, it is the utility of the program in accomplishing some purpose.
There is no question that Congress has extended copyright protection to computer programs. Whelan Associates, Inc. v. Jaslow Dental Laboratory, Inc., 797 F.2d 1222, 1234 (3d Cir. 1986) states:
Title 17 U.S.C. § 102(a)(1) extends copyright protection to "literary works," and computer programs are classified as literary works for the purposes of copyright. Such protection can be extended only to the author's "expression of ideas" in the software
(Whelan Associates, id.; 17 U.S.C. § 102(b)), though the scope of expression may include many facets of the work. As Whelan Associates, 797 F.2d at 1248 explains:
Copyright protection of computer programs may extend beyond the programs' literal code to their structure, sequence, and organization . . . .
But even those general areas may not be protected unless they are in fact the original expressions of the author. Copyright protection must be perceived in terms of the public purpose behind the granting of the copyright. And the only purpose of granting a copyright to an author of computer software -- as it is for the progenitors of other written material and patented inventions -- is "to promote Progress" in that field. As Harper & Row Publishers, Inc. v. Nation Enterprises, 471 U.S. 539, 558, 85 L. Ed. 2d 588, 105 S. Ct. 2218 (1985) puts it:
In our haste to disseminate news, it should not be forgotten that the Framers intended copyright itself to be the engine of free expression. By establishing a marketeble right to the use of one's expression, copyright supplies the economic incentive to create and disseminate ideas. Just as freedom of expression is the fount of copyright protection, so a copyright may not be asserted improperly to inhibit other persons' freedom of expression.
Limits of Copyright
ALN has advanced the affirmative defense of copyright misuse against qad's Count III asserts:
Despite the significant incorporation of HP250 components in the MFG/PRO software, qad has failed to identify that MFG/ PRO is a derivative of HP250 in its copyright registrations. Even worse, for nearly three years, qad has prosecuted its copyright infringement suit against ALN asserting that MFG/PRO is a completely original work. This improper extension and overstatement of qad's copyrights is a misuse which this Court should remedy by declaring qad's copyrights unenforceable against ALN.
ALN identifies two allegedly improper actions by qad:
1. its failure to state on its copyright registrations the existence of MFG/PRO's derivation from HP250 and
2. its misuse of its rightful possession of a copyright to gain control over material for which it has no copyright.
That first action -- though unlawful -- might not by itself constitute a misuse. It is rather the second action -- the copyright misuse -- that informs ALN's affirmative defense here. That defense, which has its historical roots in the equitable defense of unclean hands, is a complete bar to qad's prosecution of its copyright infringement case against ALN.
No party can use the limited grant that a copyright confers to gain control of components over which it has no such right. For example, it is well established in patent cases that a patentee cannot extend the lawful monopoly in the properly patented item to control another item that is not a part of the patent (Mercoid Corp. v. Mid-Continent Investment Co., 320 U.S. 661, 666, 88 L. Ed. 376, 64 S. Ct. 268 (1944)). Mercoid's analysis also applies in copyright cases, as F.E.L. Publishing v. Catholic Bishop of Chicago, 214 USPQ 409, 413 n.9 (7th Cir. 1982) teaches: "It is copyright misuse to exact a fee for the use of a musical work which is already in the public domain."
When a copyright holder attempts to use legal proceedings to protect an improper extension of a copyright, the court may
refuse to enforce the copyright. That equitable principle was stated in the patent context by Morton Salt Co. v. G.S.
Suppiger Co., 314 U.S. 488, 492, 86 L. Ed. 363, 62 S. Ct. 402 (1942):
It is a principle of general application that courts, and especially courts of equity, may appropriately withhold their aid where the plaintiff is using the right asserted contrary to the public interest.
Morton Salt, id. at 494 went on to explain:
It is the adverse effect upon the public interest of a successful infringement suit, in conjunction with the patentee's course of conduct, which disqualifies him to maintain the suit, regardless of whether the particular defendant has suffered from the misuse of the patent. Similarly equity will deny relief for infringement of a trademark where the plaintiff is misrepresenting to the public the nature of his product either by the trademark itself or by his label;
see also, for application of the like doctrine in the case of copyright [citing cases]. The patentee, like these other holders of an exclusive privilege granted in the furtherance of a public policy, may not claim protection of his grant by the courts where it is being used to subvert that policy.
As Morton Salt indicates, that doctrine of misuse has been applied in copyright infringement cases as well (see F.E.L. Publications, at 413 n. 9). Thus Lasercomb, 911 F.2d at 976 (citations omitted) has held:
We are of the view, however, that since copyright and patent law serve parallel public interests, a "misuse" defense should apply to infringement actions brought to vindicate either right. As discussed above, the similarity of the policies underlying patent and copyright is great and historically has been consistently recognized. Both patent law and copyright law seek to increase the store of human knowledge and arts by rewarding inventors and authors with the exclusive rights to their works for a limited time. At the same time, the granted monopoly power does not extend to property not covered by the patent or copyright.
In Lasercomb, id. at 978 the copyright misuse was the plaintiff's extension of its lawful copyright to control uncopyrighted material through the use of licensing agreements. In fact, the defendant there prevailed even though it was not a party to the improper agreements.
qad's Copyright Misuse
Here qad's misuse was even more egregious: It used its copyright to sue ALN and to restrain it from the use of material
over which qad itself had no rights. That is a misuse of both the judicial process and the copyright laws. qad sought and
received an injunction, the result of which severely restrained ALN. qad's deception has misled this Court into imposing
unwarranted harm on ALN -- and with the truth now having emerged, it is time to correct that grievous wrong.
At the core of qad's copyright misuse is its use of material in MFG/PRO that is not only not qad's original work but work that was actually copied from HP250. Even worse, it was mostly that copied material that formed the focus of qad's case against ALN for copyright infringement at the early stages of this litigation, when qad sought and received injunctive relief against ALN. At the Hearing qad vehemently asserted:
1. that all of MFG/PRO was qad's original work and
2. that ALN must have copied qad's original work because ALN's MFG + was so similar to MFG/ PRO.
Some examples of qad's presentation in support of both those contentions at the Hearing are illustrative. As to MFG/PRO's claimed originality, Pam Lopker testified that MFG/PRO was "original work" and that qad had written "every line of code from scratch." On cross examination, counsel for ALN asked Lopker about the genesis of MFG/PRO:
Q. Well, I was talking about MFG/PRO. And you did in fact modify some of the Hewlett- Packard programs that you put into MFG/PRO?
A. No, that's incorrect.
Q. Then why are they new?
A. When we started with MFG/PRO we started with everything new. We started with new database design. If you look at our database on MFG/PRO it is nowhere similar to the database and final concepts that we used on the 250. . . . .
On the subject of ALN's alleged copying of MFG/PRO, expert witness Rubenstein testified that he had examined MFG/PRO and MFG + and had found them to be similar. His conclusion was based substantially on his finding a number of files or procedures that had the same or similar names in the two programs. Rubenstein's testimony emphasized the names of a particular set of files that had names beginning with the prefix "cm_" as to which he said in part:
A. I've never seen cm underscore something. I -- I think it's true that in some measure, yes, fields can be named the same. I mean, name, address, everyone calls it that.
Q. Right?
A. But to preface these field names with the character cm underscore, I think it pretty chancy that two people would just independently come up with that.
* * *
A. And I think the chance of that just happening independently is vanishingly small.
On recross examination Rubenstein again emphasized that it was the "cm underscore" that was so unique that for ALN's program to have used it must mean that ALN had copied it from qad's MFG/ PRO. It was in great part that striking similarity of file and program names in MFG/PRO and MFG + that led Rubenstein to the conclusion that ALN had indeed copied MFG/PRO (and that misled this Court to the point of granting a preliminary injunction). Rubenstein's central message to this Court was that although the two programs were "somewhat different stylistically, however, [ALN's version] did use the same basic structure; it did use the same file names, PROGRESS file names".
Rubenstein's testimony was emphasized by qad's counsel Langs, who in his closing arguments at the Hearing stated:
So what we have here is a program that was designed by qad that was copied by ALN.... And there have been a lot of cosmetic changes, but you may rewrite all the programs, but they all had to fit in. And that's why the name files and the field files are so important, when the expert witness looks at code and finds up to 50% of the names in certain programs.
qad was so insistent that the Rubenstein- identified evidence proved widespread copying that it strongly urged this Court to issue a broad injunction against ALN's use of any of its MFG + programs. Langs cited SAS Institute, Inc. v. S & H Computer Systems, Inc., 605 F. Supp. 816, 831 (M.D. Tenn. 1985), for the proposition that this Court need not:
"separate the "poison" of copying from the "soup" of the S & H product, the entire product should be enjoined." and went on to state "I like the analogy of the [SAS] case, the poison in the soup, whatever, they have taken and fully profited wrongfully."
To a great extent this Court granted qad's requested relief against ALN by issuing the Order. But now the truth has emerged from the fog that qad deliberately created: Much of MFG/PRO is not original, and much of that unoriginal material -- those portions copied from HP2e0 by qad -- comprises many of the same field and program names that were allegedly copied by ALN.
In that respect the extent of copying attested to by ALN's expert Richard Suslick ("Suslick") goes beyond the copying of similar names in fields and programs to the copying of instructions. qad has sought to respond by offering evidence to show that HP250 and MFG/PRO are different in many ways. But qad wholly fails to refute ALN's evidence that qad copied from HP250 in much the same way that it alleges ALN copied from MFG/PRO. While the evidence here does not show conclusively that qad violated the copyright on HP250 (an issue not now ripe for decision), it does show beyond dispute that qad used the copied material to induce this Court to grant it an injunction and thus misused its copyright.
qad also attempts to challenge both the experience and methods of Suslick by suggesting that he made errors in his examination. ALN responds by filing a detailed refutation via the Suslick Supp. Decl. On this Rule 56 motion, of course, it would be inappropriate for this Court to weigh conflicting evidence. But no such procedure is required here: It is clear enough that those portions of HP250 that can be found in qad's MFG/ PRO are the same kinds of elements -- if not exactly the same elements -- that qad accuses ALN of copying from MFG/PRO. qad can hardly say that the demonstrated amount of copying does not rise to the level of proving ALN's affirmative defense, when qad used the same type of evidence against ALN to induce this Court to grant qad injunctive relief. This point is discussed further below.
qad also states without factual support that Suslick "has no experience in manufacturing system software design." In fact, Suslick does have such experience. qad also fails to mention that its own expert Rubenstein, whose testimony was used to persuade this Court to grant the injunction Order, himself had "no experience in the manufacturing area". Furthermore, the statement of qad's other expert Gary Alexander ("Alexander") upon which qad's assertion is based shows that he concurs with Suslick's findings that the programs are similar.
One example of qad's inconsistency is especially striking: recall the "cm underscore" that Rubenstein found to be so unique. On that score ALN's expert Suslick reports:
Mr. Lake instructed me to search for any occurrence of "cm_" in the HP250 system. I found hundreds of occurrences in field names and file names that use this prefix.
Without evincing so much as a blush, qad has now responded in a manner that both contradicts its earlier position at the Hearing and also further exposes its misuse of its copyright: It now asserts that all of the material that it copied from HP250 (much of which was also allegedly copied by ALN) is common to many manufacturing databases and is therefore functionally necessary. For example, P. Mem. 17 states:
Suslick also suggests that use of the letters "ar", ap", "gl", and "mf" (obvious abbreviations for "accounts receivable," "accounts payable," "general ledger" and "manufacturing") are indications that program names were copied. Here again, however, using common terms for common subject matter is not copying. Other companies use these same abbreviations.
These similarities are no surprise. What is surprising is that Suslick cites them as examples of similarities in "software design." These items have nothing to do with the design of software. On the same subject, Pam Lopker now states:
The fact that MFG/Pro and the HP250 software have some slight overlap in field names demonstrates merely that the two
programs are targeted at the same general market.
qad's new "expert" Alexander says that the similarities between the two programs exist because:
Each of these functions is a necessary part of any quality manufacturing system software and would be common to virtually all such systems.
Again referring to the common field and program names, Alexander says:
It is not uncommon for a system such as MFG/ Pro to use these abbreviations in its program names to designate which functions the programs perform. The use of these names suggest [sic] nothing about whether MFG/Pro was derived from the HP250 software. Moreover, neither the copyright notices, the modification logs nor the file name abbreviations have any bearing on software design.
qad's effort at a 180 degrees turnabout in its new argument is perhaps the worst possible example of a plaintiff "mending his hold" in the midst of litigation. Harbor Insurance Co. v. Continental Bank Corp., 922 F.2d 357, 362-64 (7th Cir. 1990) teaches that a party cannot change its litigation position -- that is, "mend the hold" -- once it has committed to one. Equitable principles -- the source of that doctrine -- call on this Court to respond to qad's new argument by not allowing it to change its position on the source of the field and program names in question.
[The court states in footnote 21:
It would be impermissibly inequitable for this Court to allow a plaintiff to assert certain facts to win an injunction and then assert the opposite of those "facts" to fend off an affirmative defense. Some caveats are in order for the future, though:
1. This Court's denial of qad's attempt to mend its hold does not necessarily extend to qad's possible further defense against ALN's claims, for in that case the balance of equities may warrant a different result.
2. This opinion does not rule on the validity of the HP250 copyright. Although this Court has held that qad copied from HP250, it makes no ruling as to the source -- original or otherwise -- of the HP250 materials.
But even if that equitable doctrine had not called for qad's defeat here, the outcome on the current motion would be the same. Suppose qad were taken at its word (its present word) -- suppose that it took those field and program names (as well as other parts of MFG/PRO that resemble HP250) from some generic source, or that it was necessary for qad to use them because of the functioning of the program--not the expression. Even on that assumption, qad still used elements over which it had no copyright as an essential vehicle for strong-arming ALN in this lawsuit. Either way qad has misused its copyright, and this Court will not lend aid to qad's infringement case against ALN.
Conclusion
qad began to misuse its copyright over MFG/ PRO when it attempted to extend its rights over material over which it had no copyright: those portions of its software that it copied from HP250. Yet it did not reveal that fact to its adversary or to this Court. Using its weapon of falsehood, qad pursued ALN in this Court -- something that it could not have done without the advantage of its copyright.
That copyright misuse extended qad's copyright privilege beyond the scope of the grant and violated the very purpose of a copyright, which is to give incentive for authors to produce. After all, the creation of original writings is inhibited -- not promoted -- when a possessor of a copyright commits the kind of misuse evident here. This Court should not and will not offer its aid to a copyright holder whose actions run contrary to the purpose of the copyright itself.
Furthermore, qad's present arguments reveal that its presentation at the Hearing was grounded in knowing falsehood. More than a century and a half ago Pidding v. How, 8 Simons 477, 480 (V.C. 1837) stated:
"It is a clear rule, laid down by courts of equity, not to extend their protection to persons whose case is not founded in truth." And this Court will not extend its protection to qad here. Accordingly, because there is no genuine issue of material fact as to ALN's affirmative defense to qad's Count III, it is entitled to a judgment as a matter of law on that count.
It necessarily follows from the analysis in this opinion that ALN was "wrongfully enjoined or restrained" (Rule 65(c)) by the Order. This Court consequently vacates the Order -- and at the next status hearing the parties should be prepared to discuss the remedy to be accorded to ALN by reason of the improvident granting of preliminary injunctive relief against it.
Finally, it is again noted that this opinion involves no findings as to:
1. the validity of qad's copyright covering MFG/PRO, or
2. whether qad committed fraud before the Copyright Office, or
3. whether the HP250 copyright is valid, or
4. which parts of MFG/PRO are original and which are copied.
[The court then notes, in footnote 23:]
It may be possible for qad to purge itself of the copyright misuse and then defend its copyright in another cause of action (see Lasercomb, 911 F.2d at 979 n. 22). But it is too late for qad to purge itself within the context of this lawsuit against ALN.