Petition for Writ of Certiorari — W. Schlafhorst & Co. v. Schubert & Salzer Maschinenfabrik Aktiengesellschaft

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S 8 i 0 ¢ v FILED

No. DEC 19 1988

WOSEPH F. SPANIOL, JR,

IN THE CLERK

Supreme Court of the United States

OCTOBER TERM, 1988

W. SCHLAFHORST & Co.,

AMERICAN SCHLAFHORST COMPANY

and QREEN WOOD MILLS, INC.,

Petitioners,

SCHUBERT & SALZER MASCHINENFABRIK

AKTIENGESELLSCHAFT,

Respondent.

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE FEDERAL CIRCUIT

CHARLES B. PARK, III

(Counsel of Record)

JOELL T. TURNER

Of Counsel: BARBARA K. CALDWELL

GRIFFIN B. BELL BELL, SELTZER, PARK &

JAMES D. MILLER GIBSON

KING & SPALDING 1211 East Morehead Street

1730 Pennsylvania Ave., N.W. P.O. Drawer 34009

Washington, D.C. 20006 Charlotte, NC 28234

202/737-0500 704/377-1561

WILSON - EPES PRINTING Co., INC. - 789-O096 - WASHINGTON, D.C. 20001

QUESTIONS PRESENTED

Petitioners won a jury verdict on the factual issue

whether Respondent should have filed a secret patent

pooling agreement with the Patent and Trademark Of-

fice (hereinafter “PTO”) under 35 U.S.C.A. § 135(c).

There was a timely demand for a jury under Fed. R.

Civ. P. 38(b); there was no stipulation consenting to a

bench trial under Rule 39(a) ; and Petitioner’s arguments

that the § 135(¢c) issue was one of law were made under

the express protection of Rule 50(a). Petitioner, how-

ever, did not explicitly object to the district court’s

equivocal statements during trial that the jury would be

“advisory only” on the § 135(c) issue. The district court

disregarded the jury verdict on the sole ground that the

verdict was advisory and entered judgment for Respond-

ent in the amount of $6.3 million. Recognizing that Rule

39(a) protects the seventh amendment right to a jury

trial, the first question presented is:

1. Does Rule 39(a) mean what it says?

The secret patent pooling agreement gave Respondent

and two of its competitors the right to each other’s pat-

ents royalty free. As Respondent’s counsel said at trial,

“Tt]hey were friendly competitors, that’s what the whole

system is about.” The PTO began an interference pro-

ceeding to determine whether Respondent or one of its

seemingly adverse “friendly competitors” had the right

to patent an invention. Without filing the secret agree-

ment, Respondent’s ‘friendly competitor” voluntarily

terminated the interference by surrendering any claim to

the invention. Under § 135(e), agreements that are

“causally connected” to the termination of an interfer-

ence must be filed with the PTO. The second question

presented is:

2. Is a secret patent pooling agreement, which makes

the parties to an interference ‘friendly competitors,”

causally connected to the voluntary termination of the

interference?

(i)

PARTIES

Pursuant to Rule 28.1, Petitioner W. Schlafhorst &

Co. states that it is an affiliate of Petitioner American

Schlafhorst Company. With this exception, Petitioners

have no parent companies, subsidiaries (except wholly-

owned subsidiaries) or publicly held affiliates.

TABLE OF CONTENTS

MUBSTIONS PRESENTED uoo..o............:c..cosccssecesceses

I aaah le Sehetsncssgictereesaicasasaensnausastracoéwscasnnsiooncussliadin

STATUTORY AND CONSTITUTIONAL PROVI-

aa asec Usdncieocnksdanconctooacos

Saas oe Bee CASE ........................

The Parties ____.. hee Che no 5 OEE See

(iii)

Page

TABLE OF AUTHORITIES

Cases:

Aetna Ins. Co. v. Kennedy, 301 U.S. 389 (1937)...

Anderson v. Liberty Lobby, Inc., 106 8. Ct. 2505

CED cccisacinicdeecsussdaniasnaicenahaimantadadeaieaannemanpainelsap hit

Casperone v. Landmark Oil & Gas Corp., 819 F.2d

ie Bi Be ey FRR RRR renee menon

CTS Corp. v. Piher Int'l Corp., 727 F.2d 1550

(Fed. Cir.), cert. denied, 469 U.S. 871 (1984)..

DeGioia v. United States Lines Co., 304 F.2d 421

OE SN UI ian sncscshnsenpunetepiideteb ncneinianinantadendimadeautes

Dennison Mfg. Co. v. Panduit Corp., 106 S. Ct.

Sgt): MRR Ra Aa een LR ESTOS

Hartford-Empire Co. v. United States, 323 U.S.

RE >. RRA pe One REee oun Fuk Bene ee Nn WANE Arne

Montgomery Ward & Co. v. Duncan, 311 U.S. 243

CUD sisi icici scicetcnsslsabeinda tynenieccamseehanasiniebiesebueeibaplniaadon

Moog, Inc. v. Pegasus Laboratories, Inc., 521 F.2d

501 (6th Cir. 1975), cert. denied, 424 U.S. 968

CID dt cabal cctirsiccocbsediemactbcanonssctesraneiaeniaabaentxs

Old Dominion Box Co. v. Continental Can Co., 273

F. Supp. 550 (S.D.N.Y. 1967), aff'd, 393 F.2d

I Be IE sis sccsenichcileeeneaincetanecinabmenasnansatiece’

Palmer v. United States, 652 F.2d 893 (9th Cir.

BE eisai cinanconcsnninttainiatgnipeididetilespeatadaiaadss

Perkin-Elmer Corp. v. Computervision Corp , 732

F.2d 888 (Fed. Cir.), cert. denied, 469 U.S. 857

SENET <i cccchcotcheescceseenscin bs tonpieantamanianedagnadicneiacaaieeapemeeaacae

Precision Instrument Mfg. Co. v. Automotive

Maintenance Mach. Co., 324 U.S. 806 (1945)...

Quaker City Gear Works, Inc. v. Skil Corp., 747

F.2d 1446 (Fed. Cir. 1984), cert. denied, 471

Se I ON virssticia cnn ceaedatcentionacceuctemetsiaiduces

United States v. 1966 Beechcraft Aircraft Model

King Air, 777 F.2d 947 (4th Cir. 1985) —.............

United States v. Automobile Mfrs. Ass’n, 307

F. Supp. 617 (C.D. Cal. 1969), aff'd mem., 397

es BE I sanccatcvoccecibtanbeeesitatabseeaecOenipniguiie

Page

15, 17

TABLE OF AUTHORITIES—Continued

Page

United States v. Automobile Mfrs. Ass’n, 1969

Trade Cas. (CCH) {72,907 (1969), modified,

1982-83 Trade Cas. (CCH) { 65,088 (1982),

modification approved, 1982-83 Trade Cas.

Coan FS Gre Ce cc 18

United States v. Automobile Mfrs. Ass’n, Civ. No.

69-75-JWC (C.D. Cal. Jan. 10, 1969) 18

United States v. FMC Corp., 215 U.S.P.Q. (BNA)

43 (E.D, Pa. 1982), rev’d on other grounds, 717

Pan Fee Gon Coe; Ce 20

United States v. Imperial Chem. Indus., Ltd., 100

F. Supp. 504 (S.D.N.Y. 1951) 2000. 21

United States v. Missouri River Breaks Hunt Club,

641 F.2d 689 (9th Cir. 1981) 15

Zidell Explorations, Inc. v. Conval Int’l, Ltd., 719

ran eee GR Ce: ee... 15

Statutes, Rules, and Constitutional Provisions:

Cah: CE, ORE Wee oe i, 2,3,13

28 U.S.C.A. § 46(b) and (d) (West Supp. 1988)... 13, 14

28 U.S.C.A. § 1254(1) (West 1966) 2

35 U.S.C.A. § 135 (West 1984 and Supp. 1988) ....i, 2, 3, 6,

8-14, 16-20

Pee: Be Ge Oe inc er eee i, 3, 14

Bs eno ccdicieeio nc eee ee i, 3-4, 11-15, 17

fg Rt ot Sabena) i, 4, 9, 11-14, 16, 17

gO Re te EN Rat Noe Alsen 14

Ms | SRR RR Ree BOs WARN une eee 11

Rules of the U.S. Supreme Court, Rule 28.1... ii

Rules of the Federal Circuit, Rule 18(c) _............ 14

Other Authorities:

W. Bowman, Patent and Antitrust Law 201

CRED: Recdacinsotecntestiucd See 18

J. Davis, Patent Licensing and the Anti-Trust

Laws: Some Recent Developments, 46 Pat. Off.

eee Ea | RR ae 18, 20, 21

J. Mortimer, Rumpole and the Dear Departed, in

Rumpole For The Defence 92 (1986) ................. 16

TABLE OF AUTHORITIES—Continued

Page

M. Klitzman, Patent Interference Law and Prac-

SED SEES COD icctccttecencociniciccictedeiacanenaiaias 8

Letter from Acting Deputy Attorney General

Nicholas deB. Katzenbach to Rep. Emanuel

Celler (April 30, 1962), reprinted in 1962 U.S.

Code Cong. & Admin. News 3288 .....0.00000000000000... 20

IN THE

Siuprenwe Court of the United States

OCTOBER TERM, 1988

No.

W. SCHLAFHORST & Co.,

AMERICAN SCHLAFHORST COMPANY

and GREENWOOD MILLS, INC.,

Petitioners,

Vv.

SCHUBERT & SALZER MASCHINENFABRIK

AKTIENGESELLSCHAFT,

Respondent.

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE FEDERAL CIRCUIT

Petitioners W. Schlafhorst & Co., American Schlafhorst

Company, and Greenwood Mills, Inc. ask that a writ of

certiorari be issued to review the judgment of the Court

of Appeals for the Federal Circuit, entered on August 24,

1988.

OPINIONS BELOW

The unreported opinion of the Federal Circuit appears

as Appendix A to this Petition. The existence of the

opinion is reported at 856 F.2d 202 (Fed. Cir. 1988).

The unreported opinion of the Magistrate in the district

court, entered on July 8, 1987, appears as Appendix B

_—

to this Petition. The jury’s verdict in answer to special

interrogatories on June 26, 1987 appears as Appendix C

to this Petition.

JURISDICTION

The judgment of the Court of Appeals (Appendix A)

was entered on August 24, 1988. A timely petition for

rehearing was denied on October 12, 1988 (Appendix D).

{A suggestion for rehearing en banc, which was made as

part of the petition for rehearing, was denied separately

on October 28, 1988.) Jurisdiction of this Court is in-

voked under 28 U.S.C.A. § 1254(1) (West 1966).

STATUTORY AND CONSTITUTIONAL

PROVISIONS INVOLVED

The seventh amendment to the United States Constitu-

tion provides as follows:

In Suits at common law, where the value in con-

troversy shall exceed twenty dollars, the right of

trial by jury shall be preserved, and no fact tried by

a jury, shall be otherwise re-examined in any Court

of the United States, than according to the rules of

the common law.

Title 35 U.S.C.A. §135(c) (West 1984), provides in

relevant part as follows: -

(ec) Any agreement or understanding between par-

ties to an interference, including any collateral

agreements referred to therein, made in connection

with or in contemplation of the termination of the

interference, shall be in writing and a true copy

thereof filed in the Patent and Trademark Office

before the termination of the interference as between

the said parties to the agreement or understanding.

If any party filing the same so requests, the copy

shall be kept separate from the file of the interfer-

ence, and made available only to Government agen-

cies on written request, or to any person on a show-

ing of good cause. Failure to file the copy of such

agreement or understanding shall render perma-

nently unenforceable such agreement or understand-

ing and any patent of such parties involved in the

interference or any patent subsequently issued on

any application of such parties so involved... .

Title 35 U.S.C.A. § 185 (West 1984 and Supp. 1988) ap-

pears in full text as Appendix E.

Rule 38(a), (b) and (d) of the Federal Rules of Civil

Procedure provides as follows:

Jury Trial of Right

(a) Right Reserved. The right of trial by jury

as declared by the Seventh Amendment to the Con-

stitution or as given by a statute of the United

States shall be preserved to the parties inviolate.

(b) Demand. Any party may demand a trial by

jury of any issue triable of right by a jury by serv-

ing upon the other parties a demand therefor in

writing at any time after the commencement of the

action and not later than 10 days after the service of

the last pleading directed to such issue.

(d) Waiver. The failure of a party to serve a de-

mand as required by this rule and to file it as re-

quired by Rule 5(d) constitutes a waiver by the

party of trial by jury. A demand for trial by jury

made as herein provided may not be withdrawn with-

out the consent of the parties.

Rule 39(a) and (e) of the Federal Rules of Civil Pro-

cedure provides as follows:

Trial by Jury or by the Court

(a) By Jury. When trial by jury has been de-

manded as provided in Rule 38, the action shall be

designated upon the docket as a jury action. The

trial of all issues so demanded shall be by jury, un-

less (1) the parties of their attorneys of record, by

written stipulation filed with the court or by an oral

stipulation made in open court and entered in the

record, consent to trial by the court sitting without

a jury or (2) the court upon motion or of its own

initiative finds that a right of trial by jury of some

or all of those issues does not exist under the Con-

stitution or statutes of the United States.

(ec) Advisory Jury and Trial by Consent. In all

actions not triable of right by a jury the court upon

motion or of its own initiative may try any issue

with an advisory jury or, except in actions against

the United States when a statute of the United

States provides for trial without a jury, the court,

with the consent of both parties, may order a trial

with a jury whose verdict has the same effect as if

trial by jury had been a matter of right.

Rule 50(a) and (b) of the Federal Rules of Civil Pro-

cedure provides in part as follows:

Motion for a Directed Verdict and for Judgment

Notwithstanding the Verdict.

(a) Motion for Directed Verdict: When Made;

Effect. A... motion for a directed verdict which

is not granted is not a waiver of trial by jury even

though all parties to the action have moved for di-

rected verdicts. ...

(b) Motion for Judgment Notwithstanding the

Verdict. Whenever a motion for a directed verdict

made at the close of all the evidence is denied or for

any reason is not granted, the court is deemed to

have submitted the action to the jury subject to a

later determination of the legal questions raised by

the motion. ... If a verdict was returned the court

may allow the judgment to stand or may reopen the

judgment and either order a new trial or direct the

entry of judgment as if the requested verdict had

been directed....

STATEMENT OF THE CASE

Tie Parties

Petitioner W. Schlafhorst & Co. (“Schlafhorst”), a

West German firm, manufacturers and sells textile ma-

chinery. Until the early 1970’s, Schlafhorst’s business

was focused on yarn-winding machines. In 1974, how-

ever, Schlafhorst began research and development of

a new, fully automated “open-end” yarn spinning ma-

chine, which used a high-speed rotor to twist fibers into

yarn. Schlafhorst had not previously made open-end (or

“QE”) spinning machines, and the market for those

machines had been dominated by a Western European

consortium, which included Respondent Schubert &

Salzer Maschinenfabrik Aktiengeselischaft (‘Schubert &

Salzer”). Schlafhorst’s OE spinning machine was intro-

duced in 1978, and its commercial success led in 1985 to

the present litigation.

Petitioner American Schlafhorst Company is the sales

and service representative in the United States of W.

Schlafhorst & Co., and Petitioner Greenwood Mills, Inc.

is a purchaser and user of Schlafhorst’s OE spinning

machine. The Petitioners will be referred to collectively

as “Schlafhorst.”’

Respondent Schubert & Salzer, which is also a West

German textile machinery firm, holds a United States

patent on a method and apparatus of cleaning the rotor

_ that twists fibers into yarn. As noted above, Schubert

& Salzer was a member of a consortium with the two

other leading Western European spinning machine manu-

facturers. In December 1985, Schubert & Salzer sued

Schlafhorst in the United States District Court for the

District of South Carolina, alleging that Schlafhorst’s

OE spinning machine infringed Schubert & Salzer’s pat-

ent. The jury found in favor of Schubert & Salzer on

infringement, but also found that the infringement was

not willful. The jury calculated that a reasonable roy-

alty to compensate for the infringement would be $6.3

million. See jury verdict at Appendix C. None of these

jury findings are at issue in this Petition. On the other

hand, the jury further found that Schubert had not com-

plied with 35 U.S.C. § 135(c), which renders the patent

unenforceable. As explained below, this finding is very

much involved in this petition.

The Secret Pooling Agreement

The OF spinning technology that is involved in this

lawsuit was introduced in the mid-1960’s, and because

of its greater speed was immediately recognized to be

extremely valuable. In 1965, Respondent Schubert &

Salzer, along with a Swiss concern, Maschinenfabrik

Rieter Aktiengesellschaft (“Rieter”), and a_ British

company, TMM (Research) Ltd.,’ entered into a secret

pooling agreement “to try jointly to develop OE spinning

up to an economically usable method.” The secret pooling

agreement, in an English translation, appears as Ap-

pendix F to this Petition.

The agreement explicitly required secrecy: “The fact

of common development in the field of OE spinning is

to be kept secret from outsiders.” App. F, at 36a. Fur-

thermore, the agreement provided for blanket, royalty

free cross-licenses: ‘Any inventions, whether patented

or not... in this field, which has been invented by any

one of the parties, must be made available to all parties

licence-free for commercial utilization.” Intellectual prop-

erty in the OF field under the agreement ‘may only be

disposed of with the consent of all the partners.” Jd.

at 38a. The agreement was for a term of 10 years, un-

less the aim of the agreement (i.e., development of a

“commercially usable method”) was achieved earlier.

Even after termination, however, the intellectual property

1TMM (Research) Ltd. was controlled by the large British con-

cern Stone-Platt Industries, Ltd., which also owned Platt Saco

Lowell, Ltd. and its U.S. subsidiary.

shared under the agreement “may not be made accessible

to non-partner firms.” Jd. at 40a.

In late 1969, the secret Partners entered into a “Sup-

plement” to the 1965 pooling agreement, which appears

(in the original English) as Appendix G to this Petition.

The Supplement provided that the 1965 agreement “will

continue for the full duration of ten years,” even though

in 1969 the secret Partners were close to commercial

production of rotor spinning machines. The Supplement

also confirmed that “any information in the possession

of any one Partner, including all design information and

data, will be made freely available to the other Partners

on request.” The Supplement made no other changes to

the 1965 agreement.

The intent of the Partners in the consortium estab-

lished by the secret agreement was the subject of testi-

mony at trial from Hans Stahlecker, President of Sues-

sen Corporation, a supplier of component parts to Schlaf-

horst for its OE spinning machine. In 1975, Mr. Stah-

lecker met with Mr. Van Duitshuisen of Schubert &

Salzer, who told him “plain and clear that the consortium

consisting of Schubert & Salzer, Rieter and Platt had

decided that they would keep the open-end business to

themselves.” J.A. 1731.?

The 1969 Patent Office Interference

The patent on which Schubert & Salzer based its suit

against Schlafhorst resulted from a patent application

filed in the United States Patent & Trademark Office

(the “PTO’”’) in 1967. Rieter, the Swiss member of the

secret consortium, also filed a patent application in the

PTO in 1967 for a similar invention. Both the Schubert

& Salzer application and the Rieter application related

to OE spinning technology and therefore were within the

scope of the secret pooling agreement. In May 1969, the

2“7.A.” refers to the Joint Appendix filed in the Federal Circuit.

PTO declared an interference under § 135 (Appendix E)

between the two applications. See generally M. Klitzman,

Patent Interference Law and Practice xxiii (1984) (“An

interference in the [PTO] or in the courts is a proceed-

ing instituted to determine priority of invention between

two or more applicants or applicants and patentees

claiming substantially the same patentable invention.’’).

As a result of the interference, Schubert & Salzer and

Rieter learned for the first time that each other had filed

competing applications. Without revealing the secret

relationship, Schubert & Salzer, rather than Rieter, ad-

vised the PTO that Rieter would terminate the interfer-

ence by withdrawing the portion of its application that

overlapped the Schubert & Salzer application. J.A. 2779.

After two procedurally flawed attempts to end the inter-

ference in August and September 1969, Rieter finally suc-

cessfully surrendered in December 1969, and the PTO

formally terminated the interference early the next year.

Neither Schubert & Salzer nor Rieter filed the secret

pooling agreement or the Supplement with the PTO.

The Jury Trial and the Magistrate’s Decision

When Schubert & Salzer filed its complaint in Decem-

ber 1985, it demanded a jury trial. Weill before trial,

Schlafhorst moved for summary judgment on the ground

that Schubert & Salzer’s patent was unenforceable be-

cause the secret pooling agreement had not been filed

with the PTO at the time the interference had been ter-

minated, as required by §135(c). The district court

(Anderson, J.) denied Schlafhorst’s motion, stating that

because the question involved “[r]easons, motivations,

purposes for that agreement ...I could see where

[Schlafhorst] could be right, but not on summary judg-

ment. [Schlafhorst] could be right on directed verdict,

if the facts are fully developed.” J.A. 94. Later, as

the matter was nearing trial, both parties consented to

trial before a Magistrate sitting with a jury.

Thereafter, with the approval of the Magistrate and

based upon additional facts, Schlafhorst renewed its mo-

tion for summary judgment on the § 135(c) issue. Early

in the trial, the Magistrate hearing argument on this

motion questioned whether this issue involved any dis-

puted facts: “Let’s go back to whether its a jury issue

or not. I don’t think it is. Strictly a legal issue. There

are no facts; there is a document. Whether it should

have been filed or not is, I think, a legal issue. J.A.

559. Later that day, after hearing testimony from an

official of Schubert & Salzer about the secret agreement,

the Magistrate expressed the contrary view, saying

“{the] more I hear, the more it becomes a factual issue.”

J.A. 729. The next morning the Magistrate denied the

motion for summary judgment “at this time.” In so

doing, the Magistrate did not suggest that the jury would

be advisory on the § 135(c) issue. J.A. 738.

At the close of Schubert & Salzer’s evidence, Schlaf-

horst moved for directed verdict on the § 135(c) issue.

Then, the Magistrate, in once again pondering whether

the case should go at all to the jury, mentioned for the

first time the possibility of an advisory jury. Schlafhorst

did not object to the Magistrate’s offhand remark because

the focus of the entire colloquy was Schlafhorst’s motion

for a directed verdict under Rule 50(a).

At the close of Schlafhorst’s evidence, Schubert &

Salzer moved for a directed verdict on the § 135(c)

issue. The Magistrate heard Schubert & Salzer’s argu-

ment, and then stated “[i]t’s going to the jury and I

haven’t decided whether it’s going to be advisory or not.”

J.A. 1946. Schlafhorst argued that the issue was ap-

propriate for directed verdict, but in its favor. In the

context of the argument on Schubert & Salzer’s motion

for a directed verdict, the Magistrate stated:

“(W]e don’t know whether it should go to the jury;

we don’t know the burden of proof. I am going to

send it to the jury just to protect ourselves so we

don’t have to retry the case, and I’ll decide after-

wards, if I have to. I may not have to. I hope they

decide for me, let them decide. We’ll send it to them

advisory, that way we’re all protected.”

J.A. 1950.

The Magistrate charged the jury on the issues of

validity, infringement, damages, and compliance with

§ 135(c). In explaining the special interrogatories to

the jury, the Magistrate never suggested that the jury

would be advisory on the § 135(c) issue, but instead em-

phasized the importance of the jury’s deliberations: “I

assure you you are the first jury to ever have to consider

this issue [ie., §135(c)]. You'll go down in history.

This will be a case will be referred to I’m sure, maybe

be a big deal to you ten years from now—you are the

first.” J.A. 2079.

The actual interrogatory given to the jury set forth

the text of § 135(c) and then asked:

Has Defendant established by a preponderance of

the evidence that Plaintiff exhibits 59 and 59A [the

secret pooling agreement and its Supplement] should

have been filed with the Patent Office pursuant to 35

U.S.C. § 285(c) [sic].

¥e x No ——

/s/

MITCHELL W. COPELAND,

Foreman

App. C, at 32a.

Following publication of the verdict, Schubert & Salzer

asked that the jury be polled on the § 135(c) interroga-

tory “to make certain they understand who they [are]

ruling for.” J.A. 2136. After the jury was polled,

Schlafhorst moved for entry of judgment based on the

jury’s answer to the § 135(c) interrogatory. The Magis-

trate then stated: “We had an understanding at the be-

ginring it was advisory.” Schiafhorst replied: “Are you

saying you haven’t made up your mind on entering the

verdict?,” and the Magistrate answered ‘‘No, I haven't.

I haven’t.” J.A. 2137. This colloquy appears as Appen-

dix H to this Petition.

Schlafhorst formally moved for entry of judgment

based on the jury’s verdict that the secret pooling agree-

ment and its Supplement should have been filed with

the PTO. Respondent made no motion for judgment not-

withstanding the verdict (“JNOV”) under Rule 50 or

for a new trial under Rule 59. On July 8, 1987, the

Magistrate issued an Order (Appendix B), including find-

ings of fact and conclusions of law, which disregarded

the jury’s verdict and instead found that the secret

agreement and its Supplement “had no causal relation-

ship to the interference proceedings.” App. B, at 9a. The

Magistrate quoted extensively from the trial testimony of

Max Huttner, the head of Rieter’s patent department

(App. B, at 20a-23a), and expressly found “that Max

Huttner’s testimony that there was no agreement to end

the interference is credible” (App. B, at 9a).

The Magistrate stated that the “advisory verdict was

agreed to by both parties” (App. B, at 6a), but did not

point to any place in the record that reflected such an

agreement and did not discuss or cite Rule 39(a). In-

deed, the record does not refiect any stipulation by either

party consenting to a non-jury trial within the meaning

of Rule 39(a). Despite the fact that his decision was

based on factual findings including an express determi-

nation that the testimony of one witness was credible,

he also inexplicably further stated that the § 135(c) is-

sue was a “legal one only:”

The question of whether the § 135(c) issue should be

submitted to the jury or is an issue for the court’s

determination was resolved in this case by submitting

the issue to the jury in an advisory role only. After

attempting to draft proper instructions for the jury

concerning § 135(c), this court concludes that the

issue is a legal one only and not one for a jury. To

attempt to instruct a jury as to the meaning of an

interference and then to attempt to instruct them as

to the application of § 135(c) defies the limits of

common sense.

App. B, at 23a-24a n.12.

The Federal Circuit’s Decision

On appeal, Schlafhorst challenged, inter alia, the Mag-

istrate’s decision that the secret pooling agreement was

not subject to § 135(c) and his disregard of the jury’s

verdict to the contrary. Without any analysis, two

judges * of the Federal Circuit affirmed the Magistrate’s

factual finding that there was no “causal connection”’

between the secret agreement and Rieter’s termination

of the interference. Furthermore, the judges held that

Schlafhorst’s failure to object to the Magistrate’s mus-

ings regarding the role of the jury, and its arguments

that the $135(c) issue was one of law, amounted to

a consent to a non-jury trial.

The two judges did not analyze Rule 39(a), and in

paraphrasing that rule omitted the express requirement

that any oral stipulation consenting to a non-jury trial

be “entered in the record.” Their opinion does not note

that the Magistrate’s actions with respect to the role of

the jury were at best equivocal or that Schlafhorst’s

arguments that the § 135(c) issue was one of law were

all made in the context of its motions for summary

judgment or directed verdict on that issue. The judges

did not discuss or cite Rule 50(a), which provides that

motions for directed verdicts are not waivers of trial

by jury.

3 Judge Davis, a member of the original panel, died following

oral argument and took no part in the decision.

REASONS FOR GRANTING THE WRIT

A. This Petition raises two important federal ques-

tions, neither of which has been previously considered by

this Court. First, this case presents the best possible

context for this Court to examine the Federal Rules of

Civil Procedure that protect the seventh amendment

right to a jury trial. The facts here squarely present

the question whether Rule 39(a) means what it says.

As discussed below in Section C, the Courts of Appeals

have dealt with Rule 39/a), but have not developed a co-

herent answer to the question of whether one party by

silence can lose its right to a jury trial where there has

been a timely demand for a jury. This case includes

the desirable circumstance that a jury actually heard

the evidence and answered a special interrogatory on

the §135(c) issue. Thus, this case arises on the con-

erete fact that whether there is, or is not, a binding

jury verdict is outcome determinative. Since this Court

has not had oceasion to interpret Rule 39/a), this case

warrants the grant of certiorari.

Second, this case presents the question of which agree-

ments relating to intellectual property rights must be

submitted to the PTO pursuant to § 135/(ec) for review

by the appropriate government agencies for antitrust

violations. Given the dramatic increase in recent years

of joint industrial research and development efforts, this

case provides an important opportunity for this Court to

examine the scope of §135(c). Significantly, this case

arrives in this Court on a full factual record, including

both a jury verdict and a contrary bench opinion. None

of the facts relating to the secret pooling agreement is

in dispute. This Court’s examination of this issue, there-

fore, would be fully informed (and also would likely be

dispositive of this lawsuit).

B. The opinion below by two judges, see 28 U.S.C.A.

$46(b) and (d) (West Supp. 1988) (permitting a

“quorum” of two judges on a panel that has the required

number of three judges), states that it was not prepared

for publication “because it does not add significantly to

the body of law and is not of widespread legal inter-

est... . It is not citable as precedent.” Such a state-

ment is provided for by Rule 18(c) of the Rules of the

Federal Circuit and is frequently appended to opinions

of that court.

Petitioners cannot suggest that this case comes to this

Court with the assistance of a well-reasoned opinion be-

low that adequately analyzes Rule 39(a) and § 135(c).

Cf. Dennison Mfg. Co. v. Panduit Corp., 106 S. Ct. 1578

(1986) (granting certiorari and summarily remanding

to the Federal Circuit for further consideration in light

of Rule 52(a), which the Federal Circuit had not men-

tioned in its opinion). Nonetheless, the issues at stake

here—contrary to the statement appended to the opinion

below—warrant the grant of certiorari. How can it be

asserted that the loss of a jury verdict in the teeth of

Rule 39(a) is not of “widespread legal interest?” How

can it be asserted that permitting the parties to a secret

patent pool to continue to keep their partnership secret

while appearing to terminate at arm’s length a patent

interference between them does not “add significantly to

the body of law?”

C. Once a jury trial is demanded by either party under

Rule 38(b), as it was in this case in Schubert & Salzer’s

complaint, the Federal Rules of Civil Procedure operate

to avoid inadvertent loss of the right to a jury trial. Cf.

Aetna Ins. Co. v. Kennedy, 301 U.S. 389, 393 (1937)

(presumption against loss of right to jury). Rule 39(a)

requires either a written consent by both sides to trial by

the court sitting without a jury, or an oral stipulation

made by both sides in open court and—this phrase was

omitted by the Federal Circuit—‘entered in the record.”

Rule 39(c) limits the use of advisory juries to actions

“not triable of right by a jury.” Finally, Rule 50(a)

provides that a party may argue that an issue is one of

law in moving for a directed verdict without waiving

trial by jury in the event the motion is denied.

In the workaday affairs of the district courts, the

seventh amendment right to a jury trial hangs or falls

by these rules. The questions at stake here have long

percolated in the lower federal courts without the develop-

ment of a consensus answer to the question of whether

a party can lose its right to a jury trial without “an oral

stipulation made in open court and entered in the record.”

Compare United States v. 1966 Beechcraft Aircraft Model

King Air, 777 F.2d 947, 951 (4th Cir. 1985) (timely de-

mand for jury trial may be waived by party’s participation

in bench trial without objection; citing cases) ; Casperone

v. Landmark Ou & Gas Corp., 819 F.2d 112, 116 (5th Cir.

1987) (same) and United States v. Missouri River Breaks

Hunt Club, 641 F.2d 689, 693 (9th Cir. 1981) (district

court’s unequivocal statement in open court while dis-

missing the jury that both parties had agreed to bench

trial constituted stipulation within meaning of Rule

39(a)) with Zidell Exploration, Inc. v. Conval Int’l, Ltd.,

719 F.2d 1465, 1469 (9th Cir. 1983) (“equivocal re-

marks” by counsel in reply to clear statement by court

that trial to be non-jury are insufficient to waive right to

jury trial); Palmer v. United States, 652 F.2d 893, 896

(9th Cir. 1981) (requiring adherence to “precise terms”

of Rule 39(a); participation in bench trial, without more,

is insufficient to show withdrawal of jury demand) and —

DeGioia v. United States Lines Co., 304 F.2d 421, 424

n.l (2d Cir. 1962) (party’s “failure explicitly to urge its

original [jury] demand” in response to trial court’s state-

ment that jury would be advisory was not a waiver of a

binding jury).

This Court should examine this question, and this case

is the best vehicle for doing so. Far from being an

abstract or hypothetical point, in this case the acceptance

or rejection of the jury’s verdict determines which party

wins. Horace Rumpole’s remark that “[{a] trial without

a jury is like an operation without anaesthetic, or a

luncheon without a glass of wine,” J. Mortimer, Rumpole

and the Dear Departed, in Rumpole For The Defence 92

(1986), is particularly true here for Schlafhorst.

It is important to recognize that the Magistrate did not

grant, and could not have granted, a JNOV under Rule

50. Schubert & Salzer never moved for JNOV, and be-

cause the Magistrate himself relied on what he saw as

the “credibility” of a Rieter witness, JNOV was mani-

festly unavailable. See Anderson v. Liberty Lobby, Inc.,

106 S. Ct. 2505, 2513 (1986) (“Credibility determinations

... are jury functions, not those of a judge...”);

Montgomery Ward & Co. v. Duncan, 311 U.S. 2438, 251

(1940) (“The motion for [JNOV] cannot be granted

unless, as matter of law, the opponent of the movant

failed to make a case and, therefore, a verdict in movant’s

favor should have been directed.”) ; Quaker City Gear

Works, Ine v. Skil Corp., 747 F.2d 1446, 1453 (Fed. Cir.

1984) (district court “had to accept the jury’s determina-

tion and could set it aside only if it were not supported

by substantial evidence”), cert. denied, 471 U.S. 1136

(1985).

Four points show there was no stipulation by Schlaf-

horst (or Schubert & Salzer, for that matter) consenting

to a non-jury trial on the § 135(c) issue:

1. Even after the jury was polled on the § 135(c)

issue (at Schubert & Salzer’s request), the Magis-

trate was still equivocal on whether the jury’s deci-

sion on that issue was binding. Schlafhorst asked

“Are you saying you haven’t made up your mind on

entering the verdict?,” and the Magistrate replied

“No, I haven’t. I haven’t.” See App. H. The Magis-

trate’s reply is inconsistent with any “agreement”

that the trial of the § 135(c) issue should be non-

jury.

2. Schlafhorst was not obligated to object to the

Magistrate’s vacillating statements on the role of the

jury in order to preserve its right to a binding jury.

DeGioia v. United States Lines Co., 304 F.2d 421,

424 n.1 (2d Cir. 1962).

3. Both Schlafhorst and Schubert & Salzer moved

for directed verdicts on the § 135(c) issue. In doing

so, both parties argued that this issue was one of law

for the Magistrate to decide, but Rule 50(a) expli-

citly states that such arguments do not waive the

right to a jury trial. Indeed, since motions for di-

rected verdicts before an advisory jury would be

“charades,” Perkin-Elmer Corp. v. Computervision

Corp., 732 F.2d 888, 895 n.5 (Fed. Cir.), cert. denied,

469 U.S. 857 (1984), these vigorously argued motions

show there had been no agreement that the jury

would be advisory.

4. Finally, the §125(c) issue could not have been

properly submitted to an advisory jury under Rule

39(¢c), because that issue is triable of right by a

jury. It is an issue of fact and was so treated by

both the Magistrate and the Federal Circuit. The

Federal Circuit’s disregard of the jury’s verdict on

the ground it was “advisory” reflected hopeless con-

fusion about the Federal Rules of Civil Procedure.

The very failure of the lower federal courts here to

analyze the applicable rules indicates the value of a deci-

sion by this Court. Because examination by this Court

would make an important contribution to federal pro-

cedural law, this Court should grant certiorari.

D. During trial, the Magistrate characterized the

effect of the secret pooling agreement as making the

“Partners” in the consortium “[f|riendly enemies.” Coun-

sel for Respondent Schubert & Salzer responded, “|t] hey

were friendly competitors, that’s what the whole system

is about.” J.A. 553.

The issue here is whether Congress, in passing § 135(c),

intended for an agreement that created “friendly competi-

tors” in the context of an interference to be filed with the

PTO and made available to Government agencies as pro-

vided in the statute. See J. Davis, Patent Licensing and

the Anti-Trust Laws: Some Recent Developments, 46

J. Pat. Off. Soe’y 12, 35 (1964) (“[§ 185(c)] thus pro-

vides the Justice Department and the FTC with easily

obtainable evidence of illegal licensing activities, and dis-

courages questionable activities ab initio”).

There can be no doubt that in 1969, when Rieter ended

the interference, the Justice Department would have been

distinctly interested in the secret pooling agreement. In

January of that year, the Department filed an injunctive

action against a very similar patent and technology pool

in the automotive industry. United States v. Automobile

Mfrs. Ass’n, Civ. No. 69-75-JWC (C.D. Cal. Jan. 10,

1969) ; see 307 F. Supp. 617 (C.D Cal 1969), aff’d mem.,

397 U.S. 248 (1970). Just as with the secret pooling

agreement here, that pool required its members to grant

royalty free licenses to other members on any inventions

within the scope of the agreement (which related to air

pollution control). The Justice Department alleged that

the pool eliminated the competitive incentives for inde-

pendent research and development. That case resulted

in a consent decree requiring each member to pursue its

own research and development program. Id.; 1969 Trade

Cas. (CCH) {72,907 (1969) (text of consent decree),

modified, 1982-83 Trade Cas. (CCH) {65,088 (1982),

modification approved, 1982-83 Trade Cas. (CCH) § 65,175

(1982).

The economic rationale of the Justice Department’s

action against the pool in the Automobile Manufacturers

case remains strong: patent and technology pools may

eliminate competition without providing any of the pos-

sible benefits of a merger of the parties to the pool.

W. Bowman, Patent and Antitrust Law 201 (1973) (“A

pool of competing patents can be more readily analogized

to a loose association than to a horizontal merger. . . .

A pool of competing patents is difficult to distinguish from

the cartel in this respect.”). Indeed, this Court has

aA th amin EN

experience with illegal patent pools. E.g., Hartford-

Empire Co. v. United States, 323 U.S. 386, clarified, 324

U.S. 570 (1945).

The parties to the interference, Schubert & Salzer and

Rieter, were both Partners in the secret pooling agree-

ment, and therefore regardless of which Partner won the

interference both would have the royalty free use of the

invention while excluding all outsiders. The Partners

communicated about the interference—it was, after all,

Schubert & Salzer who told the PTO that Rieter would

terminate the interference (J.A. 2779), and indeed the

Supplement was executed at the same time Rieter was

struggling to surrender in the interference (App. G).

There was no need for Rieter to shadowbox with Schubert

& Salzer when it really made no difference which of the

secret Partners obtained the patent.

Had Rieter contested the interference with Schubert &

Salzer, it might have obtained a patent on all or some

portion of the invention that was the subject of the inter-

ference, and in that event Rieter might have licensed that

patent to parties outside the secret consortium and col-

lected royalties. (Rieter’s secret Partners, of course,

would automatically have the royalty free use of the

patent.) In fact, however, Rieter had no incentive to

litigate and would have had to obtain the consent of all

the secret Partners to license such a patent outside the

consortium. See App. F, § 7(b). That consent would not

have been granted, because as Mr. Stahlecker testified,

the consortium had “decided to keep the open-end busi-

ness to themselves.” In reality, therefore, Rieter lost

nothing by abandoning the interference. Rieter would

be covertly entitled to any patent that issued, interference

or no interference.

Given these facts, it was not surprising that the jury

concluded that the secret pooling agreement should have

been filed with the PTO under § 135(c).

The lower courts have held that § 135(c) applies to any

agreement between the parties to an interference that

has a “causal connection” to the termination of the inter-

ference. CTS Corp. v. Pther Int'l Corp., 727 F.2d 1550,

1556 (Fed. Cir.), cert. denied, 469 U.S. 871 (1984);

Moog, Inc. v. Pegasus Laboratories, Inc., 521 F.2d 501,

506 (6th Cir. 1975), cert. denied, 424 U.S. 968 (1976);

United Staies v. FMC Corp., 215 U.S.P.Q. (BNA) 43,

51-53 (E.D. Pa. 1982) (to have requisite causal connec-

tion, unfiled agreement must “affect the parties’ motiva-

tion to litigate the inference’), rev’d on other grounds,

717 F.2d 775 (8d Cir. 1988); Old Dominion Box Co. v.

Continental Can Co., 273 F. Supp. 550, 562 (S.D.N.Y.

1967) (the unfiled agreement “for all practical purposes,

made it improbable that the interference proceedings

would or could be continued’’), aff’d, 393 F.2d 321 (2d

Cir. 1968).

The question that should be decided by this Court is

whether a patent pooling agreement, which makes irrele-

vant the outcome of any interference between members

of the pool, has a causal connection with a decision by a

member to surrender in an interference with another

member. The Federal Circuit answered no, but this deci-

sion is inconsistent with the important Congressional

policy against collusive terminations of interferences that

are contrary to the public interest. See Letter from Act-

ing Deputy Attorney General Nicholas deB. Katzenbach

to Rep. Emanuel Celler (April 30, 1962), reprinted in

1962 U.S. Code Cong. & Admin. News 3288-89 (urging

passage of legislation that became § 135(c), noting that

“(t]he purpose of this legislation is to make it more

difficult for patent applicants to use an interference set-

tlement agreement as a means of violating the antitrust

laws,” and citing Precision Instrument Mfg. Co. v. Auto-

motive Maintenance Mach. Co., 324 U.S. 806, 815-16

(1945) ) ; FMC Corp., 717 F.2d at 778-79 (reviewing leg-

islative history) ; see also J. Davis supra, at 34 (agree-

ments terminating interferences “are an obvious potential

source of trade restraint in violation of the antitrust

laws,” citing United States v. Imperial Chem. Indus., Ltd.,

100 F. Supp. 504 (S.D.N.Y. 1951)). The Federal Cir-

cuit’s decision allows parties to patent pools to wrap a

shroud of secrecy around their cartel, just as Rieter and

Schubert & Salzer did here. Because an important Con-

gressional policy is at stake, this Court should review

the decision below.

CONCLUSION

For the reasons stated above, Petitioners ask that a

writ of certiorari issue to the United States Court of

Appeals for the Federal Circuit.

Respectfully submitted,

CHARLES B. PARK, III

(Counsel of Record)

JOELL T. TURNER

Of Counsel: BARBARA K. CALDWELL

GRIFFIN B. BELL BELL, SELTZER, PARK &

JAMES D. MILLER GIBSON

KING & SPALDING 1211 East Morehead Street

1730 Pennsylvania Ave., N.W. P.O. Drawer 34009

Washington, D.C. 20006 Charlotte, NC 28234

202/737-0500 704/377-1561

December 19, 1988

Charlotte, North Carolina

APPENDICES

APPENDIX A

UNITED STATES COURT OF APPEALS

FOR THE FEDERAL CIRCUIT

88-1036

SCHUBERT & SALZER MASCHINENFABRIK

AKTIENGESELLSCHAFT,

Plaintiff-A ppellee,

Vv.

W. SCHLAFHORST & Co., AMERICAN SCHLAFHORST

COMPANY, and GREENWOOD MILLS, INC.,

Defendants-A ppellants.

Decided: August 24, 1988

Before MARKEY, Chief Judge, DAVIS* and SMITH,

Circuit Judges.

SMITH, Circuit Judge.

DECISION

W. Schlafhorst & Co., American Schlafhorst Co., and

Greenwood Mills, Inc. (Schlafhorst), appeal the judg-

ment, as finally amended, of the United States District

Court for the District of South Carolina in Schubert &

Salzer Maschinenfabrik Aktiengesellschaft v. W. Schlaf-

horst & Co., Civil Action No. 6:85-3467-3K (D.8.C. July

10, 1987). We affirm.

* Judge Davis, who died on June 19, 1988, took no part in the

decision of this case.

OPINION

The district court’s judgment, as finally amended, in-

cluded both jury verdicts in favor of Schubert & Salzer

Maschinenfabrik Aktiengesellschaft (Schubert) on the

issues of patent validity, infringement, and damages and

a decision by the magistrate, setting forth both findings

of facts and conclusions of law, in favor of Schubert on

the issues of equitable estoppel and compliance with the

filing requirements of 35 U.S.C. § 135(c). On appeal,

Schlafhorst raises five principal contentions.

First, Schlafhorst argues that the magistrate erred by

refusing to enter judgment on the jury’s verdict in favor

of Schlafhorst on the section 135(c) issue and by substi-

tuting therefor, and entering judgment in favor of Schu-

bert on, his own findings of facts and conclusions of law.

Schlafhorst contends that Schubert entered a general

demand for trial by jury at the time Schubert filed its

complaint and that, in view of this demand, Schlafhorst

was entitled to a jury trial on all issues. We disagree.

Rule 39(a) of the Federal Rules of Civil Procedure

provides that, when requested pursuant to Fed. R. Civ. P.

38, a trial shall be by jury unless either (1) the parties

consent by written stipulation filed with the court, or by

oral stipulation made in open court, to trial by the court

sitting without a jury or (2) the court determines there

is no right to trial by jury. Here, Schlafhorst consented

to trial by the magistrate on the section 135(c) issue.

The magistrate repeatedly articulated his intention that

he independently was going to decide the section 135(c)

issue and that the section 135(c) issue was being sent to

the jury in an advisory capacity only. Not only did Schlaf-

horst fail to object at trial to the magistrate’s proposed

treatment of the issue but, when questioned by the

magistrate, Schlafhorst, in open court, consistently main-

tained the position that the section 135(c) issue was a

legal issue not appropriate for resolution by a jury.

Second, Schlafhorst argues that the magistrate erred,

as a matter of law, in reaching his conclusion on the

merits of the section 135(c) issue. We disagree. The

magistrate determined that there was no causal connec-

tion between either the 1965 consortium agreement or the

1969 supplemental agreement and the termination of the

interference. Because Schlafhorst has not given us

grounds to disturb this determination by the magistrate,

we must affirm his decision on this issue. See CTS Corp.

v. Piher International Corp., 727 F.2d 1550, 1555-56, 221

USPQ 11, 15 (Fed. Cir.), cert. denied, 469 U.S. 871

(1984) (“Section 135(c) requires that any agreement or

understanding made in connection with or in contempla-

tion of the termination of an interference must be filed

with the [United States Patent and Trademark Office].’’).

Third, Schlafhorst argues that the magistrate erred,

as a matter of law, in reaching his conclusion that Schu-

bert was not precluded by the doctrine of equitable estop-

pel from bringing this action against Schlafhorst. Schlaf-

horst contends that the magistrate misapplied the legal

precedent on the issue. We disagree. The magistrate de-

termined that, although Schlafhorst may have been prej-

udiced by Schubert’s delay in bringing its action, Schlaf-

horst failed to establish that Schubert either abandoned

its claims against Schlafhorst or induced Schlafhorst into

thinking the same. Because application of equitable estop-

pel is predicated upon such a showing, see Hottel Corp. Vv.

Seaman Corp., 833 F.2d 1570, 1578, 4 USPQ2d 1939,

1941 (Fed. Cir. 1987), we cannot conclude that the

magistrate’s resolution of this issue is erroneous, as a

matter of law. Schlafhorst’s attacks on the magistrate’s

underlying factual findings on this issue are unpersuasive.

Fourth, Schlafhorst argues that the magistrate preju-

diced Schlafhorst by excluding from the jury evidence of

inconsistent positions taken by Schubert, and of rulings

made by the German Federal] Patent Court, during prose-

cution of Schubert’s counterpart German patent applica-

tion. We are not persuaded. Under the law of the Fourth

Circu'‘t, which law controls this issue on appeal, exclusion

of evidence is squarely within the discretion of the trial

court. See DeBenedetto v. Goodyear Tire &-Rubber Co.,

754 F.2d 512, 518 (4th Cir. 1985). Here, although evi-

dence of proceedings before foreign tribunals may have

some relevance to the issues in this case, Schlafhorst has

not established that the magistrate abused his discretion

by excluding this evidence.

Finally, Schlafhorst argues that the magistrate erred

in instructing the jury on the reverse doctrine of equiva-

lents. For us to disturb the jury’s verdict on that issue,

Schlafhorst has the burden of establishing that the error

was so egregious, considering the instructions as a whole,

as to require the verdict to be set aside. Jamesbury Corp.

v. Litton Industrial Products, Inc., 756 F.2d 1556, 1560

’

225 USPQ 253, 256 (Fed. Cir. 1985). Schlafhorst failed

to carry its burden on appeal.

«we areri nih ec naemialll

APPENDIX B

Note: This opinion was modified by the Magistrate in respects

that are insignificant to this Petition for certiorari.

IN THE DISTRICT COURT OF THE UNITED STATES

FOR THE DISTRICT OF SOUTH CAROLINA

GREENVILLE DIVISION

Civil Action No. 6:85-3467-3K

SCHUBERT & SALZER MASCHINENFABRIK

AKTIENGESELLSCHAFT,

Plaintiff,

VS.

W. SCHLAFHORST & Co., AMERICAN SCHLAFHORST

COMPANY, and GREENWOOD MILLS, INC.,

Defendants.

ORDER

[Filed July 8, 1987]

This matter comes before the court at this time on the

defendants’ renewed motion for directed verdict on the

issue of equitable estoppel and on the defendants’ motion

to enter the advisory verdict of the jury as a final verdict

on the merits.

The plaintiff, Schubert & Salzer Maschinenfabrik Ak-

tiengesellschaft (SSI), has sued W. Schlafhorst & Com-

pany, American Schlafhorst & Co., and Greenwood Mills

(Schlafhorst) on a claim for damages for patent infringe-

ment. The case came to trial on June 15, 1987. At the

close of the trial, the jury awarded to the plaintiff $6.3

million in damages for the infringement of United States

Letters Patent No. 3,524,312 entitled “Method and Ap-

paratus for Cleaning Rotary Spinning Chamber.” The

patent in suit was issued on August 18, 1970, to Hans

Landwehrkamp and Franz Schreyer, who assigned the

patent to the plaintiff.

Schlafhorst asserted throughout the course of the trial

that the plaintiff was equitably estopped from claiming

any relief under the patent in suit and that the patent is

unenforceable due to the plaintiff’s failure to file a con-

sortium agreement and the supplement to this agreement

entered into between SSI and two other corporations,

Rieter and TMM (Platt), pursuant to the provisions of

35 U.S.C. § 185(c). The court suggested that the issue

of the § 135(c) violation be submitted to the jury for an

advisory verdict only. This advisory verdict was agreed

to by both parties.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

After hearing and receiving the evidence, reviewing the

exhibits and briefs of counsel, and studying the applicable

law, this court makes the following finu:..;;s ov fact and

conclusions of law. Federal Rules of Civil Procedure,

Rule 52. To the extent that any findings of fact consti-

tute conclusions of law, they are adopted as such. To

the extent that any conclusions of law constitute findings

of fact, they are so adopted.

1. The United States Patent Office issued United

States Letters Patent 3,524,312 to Hans Landwehrkamp

and Franz Schreyer on August 18, 1970, on a Method

and Apparatus for Cleaning Rotary Spinning Chamber.

2. Schlafhorst introduced the “autocoro,” the alleged

infringing device at a textile show in Greenville, South

Carolina, in the spring of 1978.

3. The plaintiff inspected this device and issued a

press release charging Schlafhorst with infringement of

another unrelated patent.

4. The defendants made substantial investments in the

“‘autocoro” machine.

5. The plaintiff delayed bringing its infringement ac-

tion for more than seven years.

6. The co-inventor of the patent in suit, Franz Schreyer,

is too ill to testify.

7. The defendants have been prejudiced by the plain-

tiff’s delay.

8. The plaintiff did not abandon its patent rights.

9. The plaintiff was not silent as to its patent rights.

10. The plaintiff did not engage in any misleading

actvities as to its patent rights.

11. The plaintiff, SSI, and the defendant Schlafhorst

entered into the “Rockford Settlement” agreement in 1982

in an effort to end various patent infringement litigation

between both parties.

12. Dr. Ziechnaus of SSI tried to include in the settle-

ment agreement the automation patents. This offer was

specifically rejected by Dr. Paetzold of Schlafhorst.

13. Both SSI and Schlafhorst agreed to this court

submitting the § 135/¢) issue to the jury for an advisory

verdict only.

14. In July 1967, the plaintiff filed a U.S. Application,

Serial No. 655,906, claiming priority of a patent based

on an application filed in Germany on August 11, 1966,

No. SCH 39,387.

15. In August 1967, Rieter, a Swiss corporation, filed

a U.S. Application, Serial No. 661,332, based on an

Austrian application filed in August 1966, Serial No.

A8043166, on the same invention.

16. In May 1969, the U.S. Patent Office declared

interference number 96,857 between the two applications.

17. Rieter attempted to end the interference in October

1969.

18. Rieter was successful in ending the interference

in early December 1969.

19. On May 18, 1965, Rieter, SSI, and TMM (Platt)

entered into a consortium agreement to cooperate in the

field of open-end spinning in an effort to develop this

technology to an economically usable method.

20. Under the terms of the agreement, each partner

agreed to exchange information and each partner had

license to the patients and inventions of the other

partner.

21. The contract had a term of ten years.

22. The three consortium members entered into a sup-

lemental agreement on December 2, 1969, giving each

partner free access to information in control of the other

partner. The agreement still related to the construction

of open-end machines.

23. Neither the original agreement nor the supple-

mental agreement referred to an interference proceeding

in any manner.

24. TMM (Platt) signed the supplemental agreement

on August 12, 1969.

25. Rieter signed the supplemental agreement on No-

vember 28, 1969.

26. SSI signed the supplemental agreement on De-

cember 2, 1969.

27. Rieter attempted to end the interference at least

one month before the supplemental agreement was final-

ized.

28. In conceding the interference to SSI, Rieter lost

possible royalty rights which were not shared under the

consortium agreement.

29. The consortium agreement entered into between

Rieter, TMM (Platt), and SSI in May 1965 had no

causal relationship to the interference proceedings.

30. The supplemental agreement entered into between

Rieter, TMM (Platt), and SSI between the dates of

August 8, 1969, and December 2, 1969, had no causal

relationship to the intereference proceedings.

31. Rieter conceded priority to SSI because they were

aware that SSI had the earlier filing date and they could

not win the interference.

32. In conceding priority to SSI, Rieter never entered

into an agreement with SSI to end the interference.

33. The court finds that Max Huttner’s testimony

that there was no agreement to end the interference is

credible.

EQUITABLE ESTOPPEL

The essential elements of equitable estoppel are:

(1) an unreasonable and inexcusable delay by the

plaintiff in prosecuting its rights;

(2) the delay resulting in material prejudice to the

defendant;

(3) the infringer establishing “representations or

conduct [on the part of the patentee] which

justify an inference of abandonment of the

patent claim or that the plaintiff has induced

the [alleged] infringer to believe that its busi-

ness would be unmolested”; and

(4) the defendant acting upon such inference to his

detriment.

Unlike the standard of proof for laches, prejudice or

cetriment to the infringer may not be established on the

basis of a presumption arising from delay beyond the

statutory period. Rather, actual prejudice or detriment

10a

“intist be proved by the alleged infringer. Olympia Werke

Aktiengesellschaft v. Gen. Elec. Co., 712 F.2d 74 (4th

Cir. 1983).

The district judge exercises his discretion in the laches

and estoppel decision and his decision will be reversed

only if clearly erroneous. To determine the point at

which the delay period commences, one looks to the time

the plaintiff knew or, in the exercise of reasonable dili-

gence, should have known of the defendant’s alleged

infringing action. B.W.B. Controls, Inc. v. U.S. Indus-

tries, Inc., 228 U.S.P.Q. 799 (E.D.L.A. 1985).

Some factors constituting prejudice are: (1) impor-

tant witnesses dead, (2) memories of other witnesses

dulled; (3) relevant records destroyed or missing, (4)

heavy capital investment by defendant in facilities to

expand production. B.W.B. Controls, Inc., supra at 812.

For the plaintiff’s actions to be construed as mislead-

ing, the plaintiff must have made representations or

engaged in conduct which justifies an inference of aban-

donment of the patent claim or a belief that the defend-

ant’s business would be unmolested. For silence to be an

_(__estoppel, some evidence must exist to show that the

silence was sufficiently misleading to amount to bad

faith. B.W.B. Controls, Inc., supra at 812.

Delay in Prosecution

On August 18, 1970, the United States Patent Office

issued to Hans Landwehrkamp and Franz Schreyer

United States Letters Patent 3,524,312 on a Method and

Apparatus for Cleaning Rotary Spinning Chamber.’

In the spring of 1978 at a textile show in Greenville,

South Carolina, Schlafhorst introduced the ‘autocoro”

machine containing the alleged infringing device. After

the plaintiff inspected this device, they issued a press

release charging Schlafhorst with infringement of an-

1 See plaintiff’s exhibit 7.

a harman ee

Ket are?

lla

other patent unrelated to the patent in suit.2 On De-

cember 26, 1985, SSI filed this action alleging patent

infringement. The defendants allege that the delay be-

tween the time the plaintiff filed this action and the

initiation of prosecution was unreasonable.

The most common way to prove prejudicial delay is to

supply proof that, after the patentee has by its conduct

justified an inference of abandonment of its patent claim

or has led the defendant to believe its business “would

be unmolested,” the defendant has proceeded to make

substantial investments in its business and that its busi-

ness has grown extensively. Olympia, supra at 77.

Although the defendants can show substantial invest-

ments in the “autocoro,” they cannot establish the infer-

ence of abandonment of the patent claim. This is a neces-

sary element in proving abuse of process.

Material Prejudice

The defendants further assert that they have suffered

considerable prejudice due to the plaintiff’s delay in

prosecuting its action. They assert that the co-inventor

of the patent is too ill to testify and that Schlafhorst has

expended considerable sums in production and promotion

of the ‘“‘autocoro” machine.* Indeed, the defendants have

shown an essential element of the prejudice argument;

however, the demonstration of unreasonable delay or

under prejudice does not end the inquiry.

Inference of Abandonment

The defendants must show that, through the plaintiff’s

representations or conduct, abandonment of the patent

ean be inferred by the infringer or that the plaintiff

has induced the infringer to believe that his business will

be unmolested. In addition, the defendants must show

2 See defendants’ brief, page 63.

3 See defendants’ brief, page 68.

12a

that they have acted upon such inference to their detri-

ment.

An infringer cannot infer from the silence of a pat-

entee that he approves of the infringer’s activities. The

infringer must show that the silence was sufficiently

misleading to amount to bad faith. B.W.B., Inc., supra

at 812.

The defendants cannot show that SSI abandoned its

patent rights, that they were silent to these patent rights,

or that they engaged in misleading activities. The very

correspondence engaged in between the two companies

refutes this contention.

In 1982, the companies entered into what has been

termed the “Rockford Settlement” agreement. This set-

tiement attempt was an effort to end the constant stream

of litigation between both parties for various acts of

infringement of the other’s respective patents.*

During the course of these negotiations, Dr. Ziechnaus

of SSI discussed including in the settlement agreements

the automation patents (which presumably included the

Landwehrkamp patent, the patent in suit, since it is an

automation patent).®° Dr. Paetzold of Schlafhorst speci-

fically informed Dr. Zeichnaus by letter that he would

not include the automation patents in the settlement

agreement.®

Therefore, the court believes it unlikely that these two

companies, who are fierce competitors and very knowl-

edgeable of each others’ intellectual property rights, were

not aware that one of the automation patents referred to

by Dr. Zeichnaus included the Landwehrkamp automated

rotary cleaning device.

4 See plaintiff’s exhibits 71 through 79.

5 See plaintiff’s exhibits 71, 73, and 76.

8 See plaintiff’s exhibit 76.

” en

13a

Although SSI may have delayed in bringing this action

(whatever the motive) to the prejudice of the defendants,

Schlafhorst cannot show an abandonment of the patent

or a misleading act on the part of the plaintiff.

INTERFERENCE

Title 35, United States Code, §135(c) provides as

follows:

ties to an interference, including any collateral

agreements referred to therein, made in connection

with or in contemplation of the termination of the

interference, shall be in writing and a true copy

thereof filed in the Patent and Trademark Office

before the termination of the interference as between

the said parties to the agreement or understanding.

If any party filing the same so requests, the copy

shall be kept separate from the file of the inter-

ference, and made available only to Government

agencies on written request, or to any person on a

showing of good cause. Failure to file the copy of

such agreement or understanding shall render per-

manently unenforceable such agreement or under-

standing and any patent of such parties involved in

the interference or any patent subsequently issued

on any application of such parties so involved. The

Commissioner may, however, on a showing of good

cause for failure to file within the time prescribed,

permit the filing of the agreement or understanding

during the six-month period subsequent to the ter-

mination of the interference as between the parties

to the agreement or understanding.

At the conclusion of the trial on the merits of the case,

this court submitted to the jury a special interrogatory

for an advisory verdict only as to whether Schubert and

Salzer had failed to comply with the statutory provisions

of § 135(c). The jury returned a verdict finding that

l4a

the plaintiff had violated the statute. At that point, the

defendants moved to have the advisory verdict entered as

a final judgment on the issue. This is the issue now

facing the court.

On July 25, 1967, the plaintiff filed U.S. Application

Serial Number 655,906 claiming priority of a patent

based on application SCH 39,387 filed in Germany on

August 11, 1966. This application resulted in the issu-

ance on August 18, 1970, of U.S. Patent No. 3,524,312.

In August 1967, Rieter, a Swiss corporation, filed a U.S.

Application, Serial Number 661,332, based upon an

Austrian application, No. A8043166, filed in August 1966

on the same invention.

Therefore, in May 1969, the U.S. Patent Office declared

Interference No. 96,857 between the two applications.

Rieter terminated the interference by withdrawing ts

claim.

The defendants assert that the plaintiff failed to com-

ply with § 135(c) by failing to file two agreements with

the patent office, thereby rendering the patent itself un-

enforceable. More specifically, the defendants assert as

follows:

Both Huttner and Canzler (and plaintiff) stead-

fastly maintain that there was no agreement between

the parties to terminate the interference and that

Rieter capitulated because it determined that it could

not prevail in the interference. But these assertions

simply skirt and ignore the real issue. The point is

that Schubert & Salzer and Rieter did not need a

specific agreement to terminate the interference, be-

cause they already had in place a more comprehen-

sive agreement (the consortium agreement and its

supplement) which obviated the necessity for a spe-

cific agreement. This broader agreement admittedly

gave Schubert & Salzer and Rieter everything they

could possibly want in connection with the settlement

15a

of the interference—the free right of use of each

other’s patent rights being contested. Manifestly,

therefore, the consortium agreement was the type of

agreement which should have been filed under Sec-

tion 135(c¢).’

Standard of Proof

The first issue facing this court is what standard of

proof is necessary for the defendants to prove the plain-

tiff’s failure to conform to the statutory mandates of 35

U.S.C. § 135(c). Regrettably, both the statute and the

courts are silent as to this issue. This court must there-

fore turn to other law.

“The standard of proof is a crucial component of legal

process, the primary function of which is ‘to minimize

the risk of erroneous decisions.’” Santosky v. Kramer,

455 U.S. 745, 758 (n. 9) (1982).

While private parties may be intensely interested in a

civil dispute over money damages, the application of a

“fair preponderance of the evidence” standard indicates

society's minimal concern with the outcome and a con-

clusion that the litigants should share the risk of error

in roughly equal fashion. Santosky, supra at 735.

The Supreme Court has mandated an intermediate

standard of proof, “clear and convincing evidence,” when

the individual interests at stake in a state proceeding

are particularly important and more substantial than

mere loss of money. “Whether the loss threatened by a

particular type of proceeding is sufficiently grave to war-

rant more than average certainty on the part of the fact-

finder turns on both the nature of the private interest

threatened and the permanence of the threatened loss.

Sontosky, supra at 756, 758.

7See defendants’ renewed motion for summary judgment of

patent unenforceability, at page 10.

16a

In a typical civil suit for money damages, the plaintiffs

must prove their case by a preponderance of the evidence.

Where Congress has not prescribed the appropriate stand-

ard of proof and the Constitution does not dictate a par-

ticular standard, the standard must be judicially delim-

itated. Herman & McLean v. Huddleston, 459 U.S. 375,

387 (1983).

Proof by clear and convincing evidence is required when

particularly important individual interests or rights are

at stake, such as proceedings to terminate parental rights,

involuntary commitment proceedings, and deportation.

In contrast, imposition of even severe civil sanctions that

do not implicate such interests has been permitted after

proof by a preponderance of the evidence, such as civil

suits involving proof of acts that expose a party to

a criminal prosecution and sanctions imposed in a pro-

ceeding including an order permanently barring an in-

dividual from practicing his profession. Herman, supra

at 389, 390.

In federal courts, causes of action for securities fraud,

anti-trust or civil rights law require proof by a pre-

ponderance of the evidence. Herman, supra at 390.

The plaintiff points to the case of United States v.

FMC Corp., 215 U.S.P.Q. 43, 51 (E.D.Pa. 1982), rev’d

on other grounds, 717 F.2d 775 (8rd Cir. 1983), where

the court enunciated its view that §135(c) should be

subject to a narrow interpretation. The court in FMC

further relied upon the equitable principle that justice

abhors a forfeiture. The plaintiff uses this case in sup-

port of its argument that the standard of proof should be

“clear and convincing evidence.”* However, the court

in FMC was not addressing what the standard of proof

should be; rather, they were interpreting the meaning

of agreements made “in connection with or in contempla-

tion of ending an interference.” It was the FMC court’s

8 Oral argument at trial.

17a

conclusion that these agreements should be subject to a

narrow interpretation.

The plaintiff contends that the penalty for violating

§ 135(c) is a forfeiture of the patent. The primary and

logical meaning of the word “forfeit” is “to lose.” For-

feiture is the divestiture of property without compensa-

tion, in consequence of a default or an offense, and is a

method deemed necessary by the legislature to restrain

the commission of the offense and to aid in its prevention.

The standard of proof in a forfeiture case is by a pre-

ponderance of the proof. 36 Am.Jur. 2d, Forfeitures and

Penalties, $$ 1 and 42.

Under 35 U.S.C. § 135(c), the penalty for an inventor’s

failure to file agreements to end an interference is the

unenforceability of the patent. The inventor does in fact

forfeit a 17-year exclusive right to property. Therefore,

the person asserting a violation of § 135(c) must prove

this violation by a “preponderance of the evidence.”

Violation of §135(c)

The final issue this court must address is whether the

defendants have established a violation of 35 U.S.C. § 135

is that Rieter and SSI ended the interference by an agree-

ment they failed to file with the U.S. Patent Office.

On May 18, 1965, Rieter, SSI and TMM (Platt) en-

tered into a consortium agreement wherein they resolved

to cooperate in the field of open-end spinning in an at-

tempt to develop open-end spinning to an economically

usable method. The agreement basically consisted of an

exchange of information where each partner had license

to the patents and inventions of the other partner. The

contract had a term of ten years. On December 2, 1969,

the three consortium members entered into a _ supple-

mental agreement concerning the construction of the

open-end machines and giving each partner free access

18a

to all information in the control of the other partner.

Nowhere in either agreement was an interference men-

tioned.

The defendants point to the consortium agreements en-

tered into between Platt, Rieter, and SSI as being violative

of § 135(c).

The first agreement, dated May 18, 1965, was entered

into more than four years before the interference was

declared. The second agreement was entered into be-

tween August 1969 and December 2, 1969. Platt signed

the agreement on August 12, 1969, Rieter on November

28, 1969, and SSI on December 2, 1969.'°

On October 13, 1969, Rieter filed its initial disclaimer

pursuant to Rule 262. After communication from the

patent office concerning the form of their disclaimer,

Rieter corrected this form and mailed it back to the

patent office on December 3, 1969."

The defendants cite Old Dominion Box Company v.

Continental Can Company, 273 F.Supp. 550 (S.D.N.Y.

1973), in support of their position. In Old Dominion, the

court found a violation of 35 U.S.C. § 135(a), despite

the fact that the agreement in question made no specific

reference to ending the interference. The determining

factor for the District Court was the fact that on the very

day the parties signed the agreement, Continental wrote

Federal (the other party to the interference) with regard

to terminating the interference, which was accomplished.

Old Dominion, supra at 562. The defendants cite the

facts of Old Dominion as being “strikingly similar’ to

the fact of this case. However, there are major distinc-

tions. As stated previously, in Old Dominion the subject

agreement was entered into on the very day the inter-

® See plaintiff’s exhibit 59.

10 See plaintiff’s exhibit 59(a).

11 See deposition of Max Huttner? pp. 24-30.

19a

ference was ended. In the present situation, the supple-

mental agreement was being negotiated through the

periods of early August to early December 1969. The in-

terference was declared in May 1969. Rieter attempted

to end the interference in October of that year, at least

one month before the supplemental agreement was final-

ized. It seems logical, as in Moog Incorporated v. Pegasus

Laboratories, Inc., 521 F.2d 501 (6th Cir. 1975), that if

the parties to the consortium agreement intended to end

an interference they would have insured that the inter-

ference was in fact ended before binding themselves to

the terms of the agreement.

The defendants further argue that in conceding priority

to SSI, Rieter lost nothing because under the consortium

agreement they still had free use of the Landwehrkamp

patent. What the defendants ignore, however, are the

considerable royalty rights lost by Rieter in capitulating

to SSI. Royalties were not shared under the agreement.

Also, the supplemental agreement was entered into by

Rieter, Platt and SSI, the same parties to the consortium

agreement. Platt had “no interest in the interference;

therefore, if the intent of Rieter and SSI was to end an

interference, it was totally unnecessary to include Platt

in the negotiations. The supplemental agreement simply

reiterated an already existing and valid agreement which

dealt mainly with open-end spinning.

Moog, supra, is another case in which the court found

a violation of § 135(c). In Moog, the court found that:

.. . there was an understanding between Moog and

Bellas of February 25, 1965, that such a modifica-

tion of the 1964 agreement was to be made prior

(emphasis added) to the filing of the parties’ conces-

sions of priority. . . . this understanding was a

condition precedent (emphasis supplied) to the filing

of those concessions, which was in turn a condition

20a

precedent (emphasis supplied) to termination of the

interferences. Moog, supra at 504.

The facts in Moog are also distinguishable from those

in the present case. In Moog, the parties had filed a

previous agreement with the patent office wherein they

granted cross-licenses to each other. However, later Moog

and Bell negotiated another agreement which revoked

their previously filed agreement. This agreement was

executed well before the date the Patent Office terminated

the interference on May 11, 1965, but the agreement was

not filed until January 11, 1966. Moog, supra at 505.

Here, the plaintiffs never filed their first agreement

and the licenses were granted more than four years be-

fore the interference was declared. Further, the parties

to the agreement attached no conditions subsequent or

precedent to its performance, especially as it relates to

an interference. The deposition of Max Huttner, head of

Rieter’s patent department from 1954 until 1980, illus-

trates that there was no agreement to end the inter-

ference. His testimony consisted of the following pertinent

passages:

Q. Do you recall that an interference was declared

between the applications of Mr. Landwehrkamp and

Mr. Schiltknecht in the United States Patent Office?

A. Yes.

- * . *

Q. But yet on August 8, 1969, or about August 8,

1969, or earlier, perhaps July 28, 1969, as reflected

on page 43, you actually cancelled three claims after

the declaration of interference involving only claim

33. Do you see that?

A. Yes.

Q. Do you recall why you cancelled claims in addi-

tion to the claim that was actually in interference?

2la

A. There was the danger of rejection based on the

fact that claim 33 and 21 and 20 were in the applica-

tion; therefore, I must have instructed our attorneys

to withdraw these claims.

Q. Why did you choose to cancel those claims after

you received the notice of interference?

A. From what I have seen on these two exhibits,

15 and 18, the Rieter application could claim a pri-

ority of August 24, ’66, and the Landwehrkamp ap-

plication claimed a priority of August 11, 1966. It

indicates that we were the junior party.

Q. Before vou took this act effecting cancellation of

claims 20, 21 and 33 in the Schiltknecht application

do you recall having any discussions with anyone

from Schubert and Salzer?

A. No.

Q. Next paragraph [defendant’s exhibit 21, page

5], it says, “Rieter terminated the above interference

to avoid incurring the expense of pursuing an inter-

ference which it believed it could not win.” Is that

statement true?

A. This is true.

Q. Why did you believe Rieter couldn’t win the in-

terference?

A. Because we were the junior party and we could

only rely on the priority date. We didn’t have any

facts confirmed in the United States which would

enable us to swear back.

Q. Looking at paragraph 6, it states, “No agree-

ment or understanding existed between Rieter and

Schubert and Salzer Maschinenfabrik Aktiengesell-

schaft that was made in connection with or in con-

22a

templation of the termination of the above inter-

ference.” Is that statement correct?

A. This is correct.

Q. So Rieter and Schubert and Salzer, to my under-

standing, did not have an agreement that was made

to terminate the interference?

A. Yes.

Q. In paragraph 8 it says, “I telephoned Mr. Canzler

of Schubert and Salzer as a courtesy to inform him

that Rieter had decided to terminate the above in-

terference.” Is that statement correct?

A. Yes.

* * * *

Q. Id like you to make it clear. Was that an

agreement between Schubert and Salzer and Rieter

to terminate the interference that we have been dis-

cussing?

A. There was no agreement.

Q. When did you decide to terminate the inter-

ference?

A. I decided to terminate the interference when I

got the communication from the Patent Office that

one claim, namely 33, has been declared as a count

in the interference.

Q. And that was in May of 1969?

A. Yes.

Q. So you phoned Mr. Canzler immediately after

you received that notification?

A. No. I phoned Mr. Canzler when I mailed the

instruction to our attorneys in America.

23a

Q. Isee. And did you tell Mr. Canzler why you had

done that?

A. Yes. I told him that I didn’t see any reason to

continue the interference due to the expenses that

would be caused, because we would be the losing party

anyway due to the fact that we could rely only on a

later application date.

(Deposition of Max Huttner taken March 30, 1987, pp.

19, 22-23, 32, 35-36, 37.)

In CTS Corp. v. Piher Intern. Corp., 727 F.2d 1550,

1556 (Fed. Cir. 1984), the court held that there must be

a causal relationship between the agreement and the

termination of the interference. The language of the

statute demands some definite link between the settlement

of an interference and the agreement or understanding.

Moog, Inc. v. Pegasus Laboratories, Inc., 376 F.Supp. 439

(E.D. Michigan, S.D. 1983).

In CTS, the circuit court, adopting the district court’s

rationale, held that the fact that the settlement agreement

referred to the interference does not mean that it is a

document terminating the interference as a matter of

fact. The court found that there was no bilateral under-

standing between the parties that the termination of the

interference was part of the consideration for the settle-

ment. Further, FMC holds that 35 U.S.C. § 135(c) must

be narrowly construed. United States v. FMC Corp.,

supra at 51.

ORDER FOR JUDGMENT

Based on the foregoing, the Clerk is directed to enter

judgment in favor of the plaintiff on the issue of equitable

estoppel and the issue of § 135(c) compliance.’

12 The question of whether the § 135(c) issue should be submitted

to the jury or is an issue for the court’s determination was re-

solved in this case by submitting the issue to the jury in an ad-

visory role only. After attempting to draft proper instructions for

24a

IT ISSO ORDERED.

/s/ William M. Catoe, Jr.

WILLIAM M. CATOE, JR.

UNITED STATES MAGISTRATE

July 8, 1987

Greenville, South Carolina

NOTICE OF RIGHT TO APPEAL

The parties are hereby advised that any appeal from

this decision will be taken to the Fourth Circuit Court

of Appeals by filing a notice of appeal with the Clerk

of the U.S. District Court. Any such notice must be filed

with the Clerk of the District Court within sixty (60)

days after the date the order is filed.

A TRUE Copy

ATTEST: ANN A. BIRCH

Clerk

By: /s/ Kieron Campbell

Deputy Clerk

—_—_—_—_—-

the jury concerning § 135(c), this court concludes that the issue is

a legal one only and not one for a jury. To attempt to instruct

a jury as to the meaning of an interference and then to attempt

to instruct them as to the application of § 135(c) defies the limits

of common sense.

25a

APPENDIX C

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF SOUTH CAROLINA

GREENVILLE DIVISION

C.A. 6:85-3467-3

SCHUBERT & SALZER MASCHINENFABRIK

AKTIENGESELLSCHAFT,

—

Plaintiff,

W. SCHLAFHORST & Co., INC.,

AMIERICAN SCHLAFHORST & Co., INC.,

and GREENWOOD MILLS, INC.

Defendants.

VERDICT

[Filed June 26, 1987]

1. We, the jury find:

Independent Claim 1

Dependent Claim 2

Dependent Claim 4

Independent Claim 5

Dependent Claim 6

Dependent Claim 7

Independent Claim 9

Dependent Claim 10

Dependent Claim 11

Dependent Claim 12

Independent Claim 14

Infringed

% UTVTL VAR Beh

Not

26a

Not

Infringed Infringed

Independent Claim 15 a re

Dependent Claim 16 v sensemiveiae

Dependent Claim 17 yw ——_—_

Dependent Claim 18 al sedition

/s/ Mitchell W. Copeland

MITCHELL W. COPELAND

Foreman

A TRUE Copy

ATTEST: ANN A. BIRCH

Clerk

By: /s/ Kieron Campbell

Deputy Clerk

2. We, the Jury find:

Independent Claim 1

Dependent Claim 2

Dependent Claim 4

Independent Claim 5

Dependent Claim 6

Dependent Claim 7

Independent Claim 9

Dependent Claim 10

Dependent Claim 11

Independent Claim 12

Independent Claim 14

Independent Claim 15

Dependent Claim 16

Dependent Claim 17

Dependent Claim 18

27a

Invalid Valid

Obvious Nonobvious

al ena vee

val Fe Sear oa

pe oe a

ee ara ad

a al

‘ciiaciiiiamessan w

een al

———— al

cnoniiamaniioedly uw

vad penne es

val prt

———— w

———~ al

—_——— YW

/s/ Mitchell W. Copeland

MITCHELL W. COPELAND

Foreman

28a

3. If you find by a preponderance of the evidence that

Plaintiff is entitled to damages for patent infringe-

ment as a result of sales of infringing devices by

Schlafhorst in the period of December 26, 1985 to

June 12, 1987, what damages do you find would have

resulted?

Six Million Three Hundred Thousand & Too

($6,300,000.00) Dollars.

/s/ Mitchell W. Copeland

MITCHELL W. COPELAND

Foreman

29a

4. If you have found that any claim of the Landwehr-

kamp patent in suit has been infringed by Defend-

ants, do you find that Schubert & Salzer has estab-

lished by clear and convincing evidence that such in-

fringement as willful?

No ¥

Yes

/s/ Mitchell W. Copeland

MITCHELL W. COPELAND

Foreman

5A.

5B.

5C.

30a

Do you find from a preponderance of the evidence

that Plaintiff has abused the process of this Court?

Yes No #4

If so, do you find that Defendants are entitled to

recover compensatory damages?

Yes No #

If you answered “yes” to question 5B above, do you

further find that Plaintiff acted in reckless disre-

gard for the rights of the Defendant.

Yes No #

If yes to 5C, what amount of punitive damages

should be awarded?

0 ($ 0 ) Dollars.

/s/ Mitchell W. Copeland

MITCHELL W. COPELAND

Foreman

3la

6A. 35 U.S.C. § 135(c) provides:

Any agreement or understanding between parties

to an interference, including any collateral agree-

ments referred to therein, made in connection

with or in contemplation of the termination of

the interference, shall be in writing and a true

copy thereof filed in the Patent and Trademark

Office before the termination of the interference

as between the said parties to the agreement or

understanding. If any party filing the same so

requests, the copy shall be kept separate from

the file of the interference, and made available

only to Government agencies on written request,

or to any person on a showing of good cause.

Failure to file the copy of such agreement or un-

derstanding shall render permanently unenforce-

able such agreement or understanding and any

patent of such parties involved in the interfer-

ence of any patent subsequently issued on any

application of such parties so involved. The Com-

missioner may, however, on a showing of good

cause for failure to file within the time pre-

scribed, permit the filing of the agreement or

understanding during the six-month period sub-

sequent to the termination of the interference as

between the parties to the agreement or under-

standing.

The Commissioner shall give notice to the parties

or their attorneys of record, a reasonable time

prior to said termination, of the filing require-

ment of this section. If the Commissioner gives

such notice at a later time, irrespective of the

right to file such agreement or understanding

within the six-month period on a showing of good

cause, the parties may file such agreement or un-

derstanding within sixty days of the receipt of

such notice.

6B.

32a

Has Defendant established by a preponderance of

the evidence that Plaintiff exhibits 59 and 59A

should have been filed with the Patent Office pur-

suant to 35 U.S.C. § 235(c).

Yes ¥ No

/s/ Mitchell W. Copeland

MITCHELL W. COPELAND

Foreman

33a

APPENDIX D

UNITED STATES COURT OF APPEALS

FOR THE FEDERAL CIRCUIT

88-1036

SCHUBERT & SALZER MASCHINENFABRIK

AKTIENGESELLSCHAFT,

¢ Plaintiff-A ppellee,

W. SCHLAFHORST & Co., AMERICAN SCHLAFHORST

COMPANY, and GREENWOOD MILLS, INC.,

Defendants-A ppellants.

Before MARKEY, Chief Judge, DAVIS* and SMITH,

Circuit Judges.

ORDER

A petition for rehearing having been filed in this case,

UPON CONSIDERATION THEREOF, it is

ORDERED that the petition for rehearing be, and

same hereby is denied.

The suggestion for rehearing in bane is under con-

sideration.

FOR THE COURT:

/s/ Francis X. Gindhart

FRANCIS X. GINDHART

Clerk

10/12/88

Date

ee: Charles B. Park, III

Julian Dority

* Judge Davis, who died on June 19. 1988, took no part in the

decision of this case.

34a

APPENDIX E

INTERFERENCE STATUTE

$135 Interferences

(a) Whenever an application is made for a patent

which, in the opinion of the Commissioner, would inter-

fere with any pending application, or with any unexpired

patent, an interference may be declared and the Com-

missioner shall give notice of such declaration to the

applicants, or applicant and patentee, as the case may be.

The Board of Patent Appeals and Interferences shall

determine questions of priority of the inventions and may

determine questions of patentability. Any final decision,

if adverse to the claim of an applicant, shall constitute

the final refusal by the Patent and Trademark Office of

the claims involved, and the Commissioner may issue a

patent to the applicant who is adjudged the prior in-

ventor. A final judgment adverse to a patentee from

which no appeal or other review has been or can be taken

or had shall constitute cancellation of the claims involved

in the patent, and notice of such cancellation shall be en-

dorsed on copies of the patent distributed after such

cancellation by the Patent and Trademark Office.

(b) A claim which is the same as, or for the same or

substantially the same subject matter as, a claim of an

issued patent may not be made in any application unless

such a claim is made prior to one year from the date on

which the patent was granted.

to an interference, including any collateral agreements

referred to therein, made in connection with or in con-

templation of the termination of the interference, shall

be in writing and a true copy thereof filed in the Patent

and Trademark Office before the termination of the in-

terference as between the said parties to the agreement

or understanding. If any party filing the same so re-

quests, the copv shall be kept separate from the file of

the interference, and made available only to Government

rere

35a

agencies on written request, or to any person on a show-

ing of good cause. Failure to file the copy of such agree-

ment or understanding shall render permanently unen-

forceable such agreement or understanding and any

patent of such parties involved in the interference or

any patent subsequently issued on any application of

such parties so involved. The Commissioner may, how-

ever, on a showing of good cause for failure to file within

the time prescribed, permit the filing of the agreement

or understanding during the six-month period subsequent

to the termination of the interference as between the

parties to the agreement or understanding.

The Commissioner shall give notice to the parties or

their attorneys of record, a reasonable time prior to said

termination, of the filing requirement of this section.

If the Commissioner gives such notice at a later time,

irrespective of the right to file such agreement or under-

standing within the six-month period on a showing of

good cause, the parties may file such agreement or under-

standing within sixty days of the receipt of such notice.

Any discretionary action of the Commissioner under

this subsection shall be reviewable under section 10 of the

Administrative Procedure Act.

(d) Parties to a patent interference, within such time

as may be specified by the Commissioner by regulation,

may determine such contest or any aspect thereof by

arbitration. Such arbitration shall be governed by the

provisions of title 9 to the extent such title is not incon-

sistent with this section. The parties shall give notice of

any arbitration award to the Commissioner, and such

award shall, as between the parties to the arbitration,

be dispositive of the issues to which it relates. The arbi-

tration award shall be unenforceable until such notice is

given. Nothing in this subsection shall preclude the Com-

mission from determining patentability of the invention

involved in the interference.

35 U.S.C.A. § 135 (West 1984 and Supp. 1988).

36a

APPENDIX F

Agreement about common development of open end spin-

ning between Maschinenfabrik Rieter A.G., Winterthur,

and Deutscher Spinnereimaschinenbau Ingolstadt, and

TMM (R) Ltd., Helmshore, Lancs, England.

On the occasion of the conference of 12.1.1965 the repre-

sentatives of the three firms aforesaid exchanged a num-

ber of items of information about OE spinning and

resolved to cooperate further in this field and to try

jointly to develop OE spinning up to an economcally

usable method. As the basis of this cooperation the fol-

lowing agreement were come to, to observance of which

the three firms mutually bind themselves:

1. Extent of the technical cooperation

The cooperation concerns the technical development of

a method of open-end spinning, starting from a material

feed for a spinning machine as at present known inclu-

sive of the formation of a yarn body.

2. Exchange of information

Each of the three partners must disclose to the others

his present knowledge and experience in the field of OE

spinning. All information disclosed in this way must be

treated as strictly confidential and may not be made

accessible to outside parties unless this information has

become generally known. The fact of common develop-

ment in the field of OE spinning is to be kept secret

from outsiders.

3. Kind of exchange

In order to achieve the purpose of the Agreement a

periodic exchange of experience shall take place. Each

partner must from time to time report to the others

about results of his own research and development in this

37a

field as well as any additional knowledge and experience

which he has acquired. For this purpose the partners

shall also hold conferences of their technical representa-

tives at regular intervals. The latter shall come together

in the research centres of each of the parties in turn and

the host partner shall disclose ali of the particulars, in-

clusive of installations, mechanisms, prototype machines,

ete., of the work he has carried out as well as his activity

taking place at that time. At each conference the other

partners shall submit reports, drawings and samples,

ete., of the work which they have carried out since the

previous session. If as appears advantageous only three

or four sessions of this kind take place in each year,

interim reports in the form of circulars shall be made

between the sessions in order to ensure prompt exchange

of items of information. The partners shall likewise

report to one another about information obtained from

outsiders.

4. Laying down of the programme of research.

The parties after the conclusion of this agreement and

after that from time to time shall lay down for each

partner the programme of the common research and de-

velopment as well as the development work to be carried

out in a certain period by each individual partner. But

each partner remains free beyond that to undertake at

any time pertinent research and development if he be-

lieves that by such a contribution the common target

can be reached more quickly.

5. Costs of the development.

Fundamentally each partner shall bear his development

costs himself. In laying down the development work to

be carried out attention must be paid to the outlay de-

manded of each partner being about equally large. If

development work should be decided upon, which demands

extraordinary outlay by one partner, a special agreement

38a

is to be effected as to how the costs are to be shared.

For research or development orders which because of a

common decision are placed with outside institutions, e.g.

“outside” a research institute, the three partners shall

answer for equal shares.

6. Patent rights

a) Each partner shall apply for patent rights upon

inventions which he himself has invented or acquired,

in his own Country at his own expense (Priority Appli-

cation) and apprize the other partners of it directly

afterwards. Six months before the expiry of the year of

priority the partners shall agree in which Countries

equivalent applications shall be carried out. The costs

of these commonly decided applications shall be borne in

common in equal shares.

But each partner is at liberty to procure patent pro-

tection at his own expense in any number of additional

Countries. But he must apprize the other partners of

these additional applications. The partner concerned shall

himself answer for the costs of these additional appli-

_ eations.

c) If a number of partners participate in one inven-

tion, this invention shall be filed at joint expense. The

partners shall agree under which name the patenting

has to be effected, since it appears inexpedient to reveal

outwardly the cooperation of the partners by naming

several Applicants.

7. Licences

a) Any inventions, whether patented or not and any

non-patentable “know-how” in this field, which has been

invented by any one of the parties, must be made avail-

able to all parties licence-free for commercial utilization.

b) Intellectual property in the possession of the three

partners may only be disposed of with the consent of all

of the partners.

39a

c) If one of the partners gets offered by an outside

party a patent of a licence right in the field of open-end

spinning, he shall without delay notify the other mem-

bers of this offer. If the three partners are interested

in acquisition of the aforesaid right, the partner to whom

the right was offered shall strive to the best of his ability

to acquire or to secure the right for the other partners.

d) Licence contracts existing at conclusion of the

(present) contract shall be brought to the knowledge of

the partners and in the event that unanimity prevails to

continue the contracts, all of the partners shall share

equally in the costs proceeding from the continuance of

the licence contracts in question, which fall due after the

conclusion of the present contract.

e) License fees payable to third parties or legal com-

pensation to employee—inventors which fall due, to the

extent that the amount can be apportioned according to

the level of the deliveries by the individual partners shall

be borne by the partners proportionately. If there is no

such possibility the partners shall agree upon another

way of doing it.

8. Term of contract, dissolution of the contract.

The contract is being concluded for a term of 10 years.

If the aim of the contract is not achieved by this time

the partners shall make up their minds whether and how

long the contract shall be prolonged. If the aim of the

contract according to mutual opinion is achieved before

the expiry of the contract term, the contract is considered

as terminated. The partners shall obtain information six

months previously about the delivery to customers for the

first time of machines which have appeared from the

common development.

After termination or respectively expiry of the contract

the right belongs to each partner to make use himself of

all of the patent rights and all of the “know-how” for

40a

open-end spinning under the same conditions as are laid

down in the contract. This intellectual property may not

be made accessible to non-partner firms.

9. Court of arbitration

Any disputes resulting from the present contract shall

be decided finally to the exclusion of the regular courts,

according to the Deeds-of-Arrangement and Arbitration

Statute of the International Chamber of Commerce in

Paris by one or more arbitrators appointed in accordance

with this statute. In particular this court of arbitration

shall be able to be called upon in the case of non-fulfilment

of the contractual obligations by a partner during and

after expiry of the contract.

10. Intellectual property

Under the term “intellectual property” in this agree-

ment shall be understood, e.g., inventions, patents, samples

and models (designs), drawings, trademarks, trade se-

crets, know-how, copyrights, etc.

; (Signatures)

Ingolstadt, 18th May 1965

“4la

APPENDIX G

SUPPLEMENT TO THE AGREEMENT OF 18TH MAY

1965, between MASCHINENFABRIK RIETER A.G.,

WINTERTHUR and DEUTSCHER SPINNEREIMA-

SCHINENBAU INGOLSTADT, INGOLSTADT, and

T.M.M. (R) LTD., HELMSHORE, LANCS, ENG-

LAND.

The Agreement on the mutual development of Open-end

Spinning dated the 18th May 1965 and signed by the

three Partners referred to above is supplemented by the

following points which now become integral parts of the

Agreement.

1. The thre: Partners are now intending to commence

the construction of Open-end Spinning Machines which

will eventually be available for sale to customers.

Each Partner will design and construct a machine

which he himself considers to be the best for his own

particular purposes. It is, however, agreed that any

information in the possession of any one Partner, in-

cluding all design information and data, will be made

freely available to the other Partners on request.

2. It is agreed by all three Partners that the May 1965

Agreement will continue for the full duration of ten

yess (see Clause 8), that is to say the Agreement will

expire on the 18th May 1975. It is agreed, however,

that two years before the expiry date the three Part-

ners will mutually examine whether and in whai form

the present Agreement shall be extended beyond the

expiry date of May 1975.

DEUTSCHER SPINNEREIMASCHINENBAU

INGOLSTADT

/s/ [(Illegible]

Date: Dec. 2, 1969

42a

T.M.M. (RESEARCH) LTD., HELMSHORE

/s/ [Ihegible]

Date: 8-12-69

MASCHINENFABRIK RIETER A.G.,

WINTERTHUR

/s/ {Tllegible]

Date: Nov. 28, 1969

43a

APPENDIX H

COLLOQUY

* * * *

[10-28] MR. DORITY: May I have the jury polled on

135 (c) to make certain they understand who they rul-

ing for?

THE COURT: As to who they ruling for?

MR. PARK: Your Honor, is that proper?

THE COURT: Advisory only, remember?

MR. DORITY: Excuse me?

THE COURT: Advisory verdict only.

MR. DORITY: Can I have the jury polled?

THE COURT: What would I ask. They reached a

verdict on it, I can ask. Poll as to that, whether that

is their verdict or not.

THE CLERK: Ladies and gentlemen, as I call you

name, just state whether that was your verdict on the

last question of the verdict.

(The jury was polled en and all affirmed the

verdict as published. )

MR. DORITY: Thank you, Your Honor.

THE COURT: All right, any of you have any ques-

tion, what went on anything, dying to know that we

never told you?

JUROR: How long did we — were we in there all

total?

[10-29] THE COURT: Nine hours. All right. Thank

you, very much. Your checks will be mailed to you. If

you have any problems, go by the ¢lerks office and they’ll

straighten out any problems.

FOREMAN: I have one last question. Does the

Court feel time we spent in there too long, too short?

THE COURT: It was about right. By the questions

you asked starting off with, you impressed me you knew

what you were doing. Thank you very much.

(Jury dismissed. )

44a

MR. PARK: Your Honor, we move entry of jury’s

verdict on the last issue.

MR. DORITY: Your Honor, we would be filing mo-

tions on that.

THE COURT: We had understanding at the begin-

ning it was advisory. It’s a very close question. I was

going to arrive at a decision, determination under any

circumstances, whether for the plaintiff or for defend-

ant. So I'l! include it in my order on estoppel and [’ll

give you the courtesy of giving you a telephone call when

I file the order, so that—

MR. PARK: Are you saying you haven’t made up

your mind on entering the verdict?

THE COURT: No,I haven’t. I haven’t.

MR. PARK: And you not entering any verdict until

[10-30] you enter it on Monday.

THE COURT: I’m going to enter a written order.

I think it’s that important, to be done right.

~ MR. DORITY: Then we have ten days to file our

motions after receiving.

THE COURT: Yes.

MR. DORITY: How about July 4th, can we get—

THE COURT: [I'll give you as much time as you

want.

MR. DORITY: We got a lot of family vacations

scheduled.

THE COURT: All right.

MR. PARK: So the order will be entered on Monday.

THE COURT: I’m going to try to. I tell you what,

Pll call you. I’ve got another trial starting Tuesday, so

I’m kind of pushed for time. And I want to make sure

I do this one right, since this is first impression case and

one on estoppel also. Both issues very close, we writing

the estoppel one now.

MR. PARK: Of course, Your Honor, the jury verdict

on 135 (c) is just, would be duplicate of estoppel.

THE COURT: Certainly, I understand that.

45a

MR. TURNER: My brief will be over here about

4:00 oclock.

THE COURT: Any additional information you want

to [10-31] submit I don’t really have, I will be glad to

look at, not closing the door putting any time limit on

that. I think both issues very, very close. Anybody got

anything else want to put on the record?

MR. PARK: No, Your Honor.

MR. DORITY: No, Your Honor, thank you, sir.

THE COURT: We have any conflict, I didn’t even

look to see on, no, we don’t. Okay, thank you again, you ~

all of you did an excellent job.

* * * *

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.