Petition for Writ of Certiorari — Lex Tex Ltd. v. J. P. Stevens & Co.

Supreme Court brief1985

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g4:1853 |? |

yaa MAY 28 1985

| AGEXANRER STEVAS:

| “TLERK-

IN THE

Supreme Court of the United States

OCTOBER TERM, 1984

LEX TEX LTD INC,

Petitioner,

J. P. STEVENS & Co., INC.

BADISCHE CORPORATION AND

BURLINGTON INDUSTRIES, INC.,

Respondents.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE FEDERAL CIRCUIT

JAMES W. CRABTREE

SMATHERS & THOMPSON

2170 Charlotte Plaza

Charlotte, North Carolina 28244

(704) 334-9988

ROBERT C. MILLER

OBLON, FISHER, SPIVAK,

MCCLELLAND & MAIER, P.C.

1755 S. Jefferson Davis Highway

Arlington, Virginia 22202

(703) 521-5940

PRESS OF BYRON S. ADAMS, WASHINGTON, D.C. (202) 347-8203

QUESTIONS PRESENTED

1. Whether the Court of Appeals for the Federal Circuit has

misconceived the mission and powers assigned to it by Con-

gress and has now established itself outside the Federal Judi-

cial System as the sole arbiter of all matters arising under the

Patent Article of the Constitution by usurping the fact-finding

functions of the United States District Courts and by creating

its own body of substantive law in disregard of long-established

precedents of this Court concerning equity, negligence and

fraud which are routinely applied in all other courts of the

Federal Judicial System.

2. Whether inequitable conduct in procuring method claims

of a patent which also contains product claims must, as a matter

of law, automatically result in holding all claims of the patent

unenforceable without regard to any equitable considerations

where:

a. The inequitable conduct was the nondisclosure of two

prior art patents which (1) were in the examiner's files

throughout the five years of prosecution of the subject patent,

(2) were in the classes and subclasses of prior art patents that

were repeatedly searched by the examiner during the prosecu-

tion of the subject patent, and (3) were known to the primary

and assigned examiners and were cited by them in other patent

applications during the pendency of the subject patent,

b. No charge nor finding of inequitable conduct was made

with respect to any product claim. (The on/y claims asserted in

the litigation were product claims.)

ec. The conduct fell short of actual fraud or deliberate

misrepresentation.

d. The beneficiaries of the newly fashioned standard of con-

duct in patent applications were found by the jury to have

wilifully infringed the claims in suit.

3. Whether the Court of Appeals for the Federal Circuit

erred in determining that conduct in the prosecution of a patent

application in 1957 to 1963 was inequitable based upon the

application of Rule 56 of the Patent and Trademark office which

was first announced in 1977.

4. Whether the Court of Appeals for the Federal Circuit

erred by announcing for the first time changes in: (a) the

requisite elements that must be proven to establish inequitable

conduct and (b) the burden of proof concerning inequitable

conduct and then applying those changes ex post facto without

affording Petitioner a remand to make the proofs now required.

TABLE OF CONTENTS

STATEMENT PURSUANT TO RULE 21(B) ............. il

er ili

ee 1

Tenn ct eheneecncan 3

a 4

REASONS FOR GRANTING THE WRIT ................ 7

csc bcbebcenes 23

APPENDIX

Findings of Fact and Conclusions of Law of the

SIE ee A-la

Opinion of the Court of Appeals for the Federal

Circuit (November 9, 1984) ................ B-24a

Order of the Court of Appeals for the Federal

Circuit denying Petitioner's Petition for Rehear-

ee ctl et he) C-47a

Order on Motion for Certification and Stay Under

EE SEO, POPE ET PETE D-49a |

Table of Six United States Letters Patent ... E-5la

“Comparative Analysis of Petitions for Writs of

Certiorari Complaining of de Novo Fact Finding

by the Circuit Courts of Appeal,” from the Peti-

tion for Writ of Certiorari and Appendix filed by

petitioner Valmet Oy and TVW Papermachines,

S.Ct. docket number 84-1664 .............. F-52a

STATEMENT PURSUANT TO RULE 21(B)

The caption of the case in this Court contains the names of

all parties in the proceedings below.

TABLE OF AUTHORITIES

CASES: Page

Admiral Corp. v. Zenith Radio Corp., 296 F.2d 708 (10th

ek Fi ory Casa de neee ea ntesh kusibeockes 16

American Hoist & Derrick Co. v. Sowa & Sons, Inc., 725

F.2d 1350 (Fed. Cir. 1984), cert. denied, 105 S.Ct. 95

ai yak seeds ciendedblee sat senacisassek ees 20

Amstar Corp. v. Envirotech Corp., 730 F.2d 1476 (Fed.

Cir. 1984); cert. denied 105 S.Ct. 306 (1984) ..... 8

Argus Chemical Corporation v. Fibreglass- Evercoat

Company, Inc. (Appeal 84-1418, decision April 4,

1985) F.2d (Fed. Cir. 1985) ......... 16, 27

Baginsky v. United States, 697 F.2d 1070 (Fed. Cir. 1983),

cert. denied, 104 S.Ct. 423 (1983) ............... 8

Bally Manf. Corp. v. Diamond, 629 F.2d 955 (4th Cir.

DE a sda kek reeks bl ee eee ewes eeu Chaadeciae 6, 26

Becton, Dickinson & Co. v. Sherwood Medical Indus-

tries, 516 F.2d 514 (Sth Cir 1975) ............... 22

Berdon, Inc. v. Occidental Petroleum Corp., 381 F. Supp.

ee eT rer eee

Clairol, Inc. v. Save-Way Industries, Inc. 210 U.S.P.Q.

oe es SU NE hs ca Chccdeekycateveamaders 22

Concerned Citizens of Vicksberg v. Sills, 567 F.2d 646 (5th

IED. s:s Gish as ods be oka eee Mah cae 9

Digital Equipment Corp. v. Diamond, 653 F.2d 701 (1st

GME Mien 446k eee se CAN Ras ch eae aes 16

Driscoll v. Cebalo, 731 F.2d 878 (Fed. Cir. 1984) . 21, 22, 24

E.I. duPont de Nemours & Co. v. Berkley & Co., 620 F.2d

ek Bere Terre er passim

Evans v. Eaton, 20 U.S. 356 (1822) ................. 12

Farmhand, Inc. v. Lahman Mfg. Co., Inc.., 192 U.S.P.Q.

749 (D. S.D. 1976) aff‘d, 568 F.2d 112 (8th Cir.); cert.

denied, 436 U.S. 913, 98 S.Ct. 2254 (1978) ....... 22

Graver Tank & Manufacturing Co. v. Linde Air Products

Co., 386 U.S. 271, 69 S.Ct. 535 (1949), aff‘d on re-

nearing, S30 U.S. G06 (1966) .... 2. ccc s ences 8

Table of Authorities Continued

Page

Graves v. Romney, 502 F.2d 1062 (8th Cir. 1974) ..... 15

Hercules, Inc. v. Exxon Corp., 207 U.S.P.Q. 1088 (D.

i errr rare rr Terry rere Ty 16

Hughes Aircraft Co. v. United States, 717 F.2d 1351 (Fed

RU SEN caccccdsuctcckcnstsdeescaancesactess 8

In re Clark, 187 U.S.P.Q. 209 (CCPA 1975) .......... 13

In re Dien, 680 F.2d 151 (CCPA 1982) ............... 6

Inre Multidistrict Litigation Involving Frost Patent, 540

ie eo ke SB Berereerea eee 13, 14, 15, 18

In re Yarn Processing Patent Validiy Litigation, 472 F.

Supp. 180 (S.D. Fla. 1979) ...........eeeeeeneee 3

Inwood Laboratories, Inc. v. Ives Laboratories, Inc., 456

U.S. 844, 102 S.Ct. 21GB (10GB)... 2... ecw eee ees. 8

Jones v. Hardy, 727 F.2d 1524 (Fed. Cir. 1984) ....... 8

Kimberly-Clark Corp. v. Johnson & Johnson, 745 F.2d

Ry GU: CO PE cv ce bnaceananciucnssseyece 20

Liberty National Insurance Holding Co. v. Charter Co.,

Ta6 F.2e G46 (Lith Cir, 1066) .. ww. ncn ccc eccncess 15

Lindemann v. American Hoist and Derrick Co., 730 F.2d

ce | A rereren rr ares 8

Norton v. Curtiss, 483 F.2d 779 (C.C.P.A. 1970) ... passim

Pendergrass v. New York Life Ins. Co., 181 F.2d 136 (8th

ee Es can ub setae da tae eee ee Kk en he 9

Pfizer & Co. v. F.T.C., 401 F.2d 574 (6th Cir. 1968) ... 18

Plantronics, Inc. v. Roanwell Corp., 403 F.Supp. 138

(S.D.N.Y. 1975), aff‘d, 535 F.2d 1397 (2d Cir.), cert.

denied, 429 U.S. 1004, 97 S.Ct. 538 (1976) ....... 22

Preemption Devices, Inc. v. Minnesota Mining and Mfg.

Co., 782 F.2d 908 (Fed. Cir. 1964) ............... 11

Pullman-Standard v. Swint, 456 U.S. 273, 102 S.Ct. 1781

le Pers rr Pree re yh tee 8

vii

Table of Authorities Continued

Page

Raytheon Co. v. Roper Corp., 724 F.2d 951 (Fed. Cir.

1983); cert. denied, 105 S.Ct. 127 (1984) ......... 8

RCA Corp. v. Applied Digital Data Systems, Inc., 730

F.2d 1440 (Fed. Cir. 1984) . 2.0.0... cc ccc cc ceenes 8

Reinke Mfg. Co., Inc. v. Sidney Mfg. Corp., 446 F.

Supp. 1056 (D. Neb. 1978) aff‘d, 594 F.2d 644 (8th Cir.

EE ET eC et oe te ee 22

Richdel Inc. v. Sunspool Corp., 714 F.2d 1573 (Fed. Cir.

ME 3.4) tne na) b nae wis eked cd Gua wes 20

Rizzo v. Goode, 423 U.S. 362, 96 S.Ct. 598 (1976) .... 15

Swann v. Charlotte-Mecklenburg Board of Education,

OUe U.S..3, OE B.Ce, URBT CIBTA) won n cca kdccens 15

Union Carbide Corp. v. Filtrol Corp., 170 U.S.P.Q. 482,

516 (C.D. Cal. 1971), aff‘d, 179 U.S.P.Q. 209 (9th Cir.

SN 05 6 444 nn G ka taiteei eA eek 650540 i0 80a 17, 22

United States vs. United States Gypsum Co., 333 U.S.

Dey Oe ee PE LOND bck sc cunc sedeshnccvavn’ 8

Wheeling Steel Corp. v. American Rolling Mill Co., 82

eg a BR eee 15

Wolens v. F. W. Woolworth Co., 703 F.2d 983 (7th Cir.

ee EE PD Eg ee 2 i any a 22

STATUTES:

Si: OED ooo au kncascadssadbbiensatene 1

SME Ge ns occ sn swuineddeswcdasctarbe 3

RE a cy c5-0 0d 606440 051s cAkGes An cea 12

Es hind cau wid eing Keane ace k cual 12

es ie savin nae beanetabecccen 11, 12, 14

as \ nas oi eealndey i448 ca ean ides 14

aa Sckas ec dais Ke ektacnaNnesscheus 13

RULES:

Rule 56, Patent and Trademark Office .......... passim

eee ceeuue 8, 9

viil

Table of Authorities Continued \

Page

CONGRESSIONAL MATERIALS:

Federal Courts Improvement Act of 1982, P.L. 97-164 5

H.R. Rep. No. 97-312, 97th Cong., Ist Sess. 37 (1981) 6, 8

OTi.ER AUTHORITIES:

9 Wright & Miller, Federal Practice & Procedure

|. rere r re tite eS 9

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE FEDERAL CIRCUIT

Petitioner prays that a writ of certiorari issue to review the

judgment of the United States Court of Appeals for the Federal

Circuit entered in the above entitled cases on November 9,

1984,

CITATIONS TO OPINIONS BELOW

The relevant Findings of Fact and Conclusions of Law of the

District Court are printed in the appendix hereto (A-la). The

opinion of the Federal Circuit is printed in the appendix (B-24a)

as reported at 747 F.2d 1553 (Fed. Cir. 1984). The order of the

Federal Circuit ruling on Petitioner’s Motion for Reconsidera-

tion is also printed in the appendix (C-47a).

JURISDICTION

The Mandate of the Federal Circuit is dated March 7, 1985,

and was entered on the same date, following denial of peti-

tioner’s motion for rehearing on February 26, 1985. The juris-

diction of this Court is evoked under 28 U.S.C. § 1254(1).

RULES INVOLVED

The rules involved are Rule 56 of the Patent and Trademark

Office and Rule 52(a), Fed. R. Civ. P.

Rule 56 [PTO]

A duty of candor and good faith toward the Patent and

Trademark Office rests on the inventor, on each attorney

or agent who prepares or prosecutes the application and

on every other individual who is substantively involved in

the preparation or prosecution of the application and who

is associated with the inventor, with the assignee or with

anyone to whom there is an obligation to assign the ap-

plication. All such individuals have a duty to disclose to

the Office information they are aware of which is material

to the examination of the application. Such information is

material where there is a substantial likelihood that a

reasonable examiner would consider it important in decid-

ing whether to allow the application to issue as a patent.

The duty is commensurate with the degree of involvement

in the preparation or prosecution of the application.

(adopted 1977)

Rule 52(a) (Fed. R. Civ. P.]

(a) Effect. In all actions tried upon the facts without a

jury or with an advisory jury, the court shall find the facts

specially and state separately its conclusions of law there-

on, and judgment shall be entered pursuant to Rule 58;

and in granting or refusing interlocutory injunctions the

court shall similarly set forth the findings of fact and

conciusions of law which constitute the grounds of its

actions. Requests for findings are not necessary for pur-

poxes of review. Findings of fact shall not be set aside

unless clearly erroneous, and due regard shall be given to

the opportunity of the trial court to judge the credibility of

the witnesses. The findings of a master, to the extent that

the court adopts them, shall be considered as the findings

of the court. It will be sufficient if the findings of fact and

conclusions of law are stated orally and recorded in open

court following the close of the evidence or appear in an

opinion or memorandum of decision filed by the court.

Findings of fact and conclusions of law are unnecessary on

decisions of motions under Rules 12 or 56 or any other

motion except as provided in Rule 41(b).

STATEMENT OF THE CASE

The Lex Tex patent in suit is 3,091,912 ('912) issued on June

4, 1963 containing claims for a method for making synthetic

yarn as well as product claims covering the yarns per se.

Significantly, the method claims and the product claims of the

‘912 patent are completely independent as to terminology and

scope, and the Lex Tex suit was based only on the product

claims. Respondents, Burlington Industries, Inc. (“Bur-

lington”), J. P. Stevens & Co., Inc. (“Stevens”) and Badische

Corporation (“Badische”) manufactured synthetic textured

yarn products covered by the product claims which was used in

the manufacture of woven and knit fabrics. The respondents

are called “Throwsters” because their yarn processing opera-

tions are commonly referred to as “throwing” yarn. The nature

and importance of the Lex Tex patent rights is discussed by the

Judicial Panel on Multidistrict Litigation at 341 F. Supp. 376

(JPML 1972) but suffice it to say that the yarn claimed in the

patent in suit was the polyester texturized yarn used in the

“double-knit” fabrics made into wearing apparel during the

double-knit craze of the ’70’s.

The several litigations involving these and related patents

were commenced in 1969 and consolidated as MDL 82 by the

Judicial Panel on Multidistrict Litigation in 1972, supra. Fol-

lowing consolidation the Throwsters filed summary judgment

motions seeking declarations of unenforceability because of

patent misuse. Thes motions were granted and in 1976 Lex

Tex filed additional patent infringement actions on the premise

that the previously adjudicated misuse had been purged. A

three-week bench trial on the issue of purge was held in 1979

with a determination that Lex Tex had purged the misuse as of

May 31, 1977. 472 F. Supp. 180 (S.D. Fla. 1979). Prior to the

cases reaching trial on the merits, the district court ordered

Lex Tex to seek reissue of its patent. After active reissue

proceedings that took over 2% years, the Board of Appeals

rejected certain of the method claims of the 912 patent but

found all the product claims valid. Based upon that opinion,

Lex Tex asserted only valid product claims in consolidated

trials which went from May to December 21, 1982.' Lex Tex

'{n essence, there were five separate trials involving the same parties. The

first was the three-week purge trial in 1979. The remaining issues of validity,

infringement, inequitable conduct, damages and antitrust defenses were

trifurcated into three trials. Phase I was a six-week jury trial on validity and

infringement which ended in a hung jury. Next was a multiweek bench trial

on fraud on the PTO. Then came the retrial before a jury of Phase I and finally

there was a jury trial on damages and antitrust defenses. The district court's

jurisdiction was based on 28 U.S.C. § 1338.

prevailed on all issues. Although appeals were taken on many

issues, the Federal Circuit considered only the issue of unen-

forceability due to alleged inequitable conduct during the pros-

ecution of the patent (1957-1963) and reversed the district

court’s conclusion—reached after twelve years of litigation, five

trials, over five months of testimony and evidence, and review

of thousands of pages of exhibits—that no such inequitable

conduct had occurred. The inequitable conduct found de novo

by the Federal Circuit was said to consist of non-disclosure of

two prior art patents. Significantly, these two patents were in

the files of the Patent Office and were known to the PTO

examiners during the entire five years the 912 application was

pending. The Federal Circuit, moreover, found inequitable

conduct only with respect to method claims which were not in

suit, but nonetheless held the entire patent, including the four

product claims in suit, automatically unenforceable because of

inequitable conduct involving the method claims alone. In so

doing, the Federal Circuit rejected well-reasoned opinions of

sister circuits stating flatly that they are not “precedent” in the

Federal Circuit.

REASONS FOR GRANTING THE WRIT

The Court of Appeals for the Federal Circuit has mis-

conceived the mission and powers assigned to it by Con-

gress and has now established itself outside the Federal

Judicial System as the sole arbiter of all matters arising

under the Patent Article of the Constitution by usurping

the fact-finding functions of the United States District

Courts and by creating its own body of substantive law in

disregard of long-established precedents of this Court

concerning equity, negligence and fraud matters which

are routinely applied in all other courts of the Federal

Judicial System.

When Congress enacted the Federal Courts Improvement

Act of 1982, P.L. 97-164, creating the Federal Circuit and

granting it exclusive jurisdiction over patent appeals, it specifi-

cally identified constitutional limitations on appellate review,

and expressed its concern that the new Federal Circuit abide

by them. Well, it has not, as evidenced by the growing number

of cases presented to this Court, many of which complain that

the Federal Circuit repeatedly usurps fact-finding functions of

district courts.* Congress found it particularly significant that

the CCPA, a predecesor Court to the Federal Circuit, rou-

tinely made de novo fact-findings concerning patent matters

and Patent and Trademark Office appeals based on its own

expertise and that of experts working as technical advisors to

the Court. In the legislative history of the Federal Courts

Improvement Act, Congress stated its concern that the prior

experience of the CCPA would lead to improper de novo fact-

finding in patent cases beyond the powers of a federal appeals

court.

It is important to understand and appreciate the funda-

mental difference between the use of technical advisors by

the Court of Customs and Patent Appeal judges and the

ex parte appeals from the Patent and Trademark Office

which they now consider and a similar type of help for

judges who are called upon to resolve technical issues in

adversary patent infringement cases of the kind that will

now be heard by the Court of Appeals for the Federal

Circuit----.

[T]o use these advisors in adversary patent infringement

cases and have them review and assess the technical as-

pects of the evidence, as developed by the sworn testi-

*See “Comparative Analysis of Petitions for Writs of Certiorari Complain-

ing of de Novo Fact Finding by the Circuit Courts of Appeal”, appearing on

A-43 of Petition for Writ of Certiorari and Appendix filed by Petitioner

Valmet Oy and TVW Papermachines with the Clerk of the Supreme Court of

the United States on April 19, 1985, Docket No. 84-1664, reproduced for

convenience in the Appendix hereto on page A.52a.

mony of witnesses and as covered by the findings of fact

entered by the trial judge, is quite a different matter

(from their use in Patent Office appeals). It is well estab-

lished that factual issues in a patent case must be tried and

decided by the trial judge or a jury in precisely the same

manner as such issues are tried in any other kind of a

lawsuit. The technical aspects of a patent case are factual

issues, and patent cases are reviewed in the Circuit

Courts of Appeal in the same manner as with other

appeals.’

The Federal Circuit’s approach to review of district courts’

fact-finding is directly contrary to the intent of the enabling

legislation that brought it into being. Congress was wary that

the appellate judges on the new court might inappropriately

rely on their own suppositions about scientific matters (as was

done here—See Federal Circuit opinion App 36a-38a) or on

their “technical advisors,” rather than on the record and dis-

trict court findings, in reviewing cases coming before it.

Indeed, here the Federal Circuit specifically relied on the

advice of so-called “technical advisors” and based its conclusion

of inequitable conduct thereon. The district court required Lex

Tex to seek reissue under the now abandoned “Dann Reissue”

proceedings. In the face of precedent holding such reissue

meaningless‘ where the trial court has itself determined the

same issue, the Federal Circuit relied entirely on technical

advice from the reissue as the basis for reversal:

Error resulted from a failure to give primary considera-

tion to events involved in the PTO reissue proceeding.

(747 F.2d 1553 at 1562; A. 36a)

In other words, the Federal Circuit relied on the opinion of a

patent examiner, based upon hearsay affidavits and lawyer's

arguments, rather than considered findings of fact and con-

*H.R. Rep. No. 97-312, 97th Cong., Ist Sess. 37 (1981).

‘In re Dien, 680 F.2d 151 (CCPA 1982). See also Bally Manf. Corp. v.

Diamond, 629 F.2d 955 (4th Cir. 1980).

clusions of law entered by a Chief United States District Court

Judge, following a full and complete trial in accordance with the

usual rules of federal practice.

The Commission on Revision of the Federal Court Appellate

System (Hruska Commission), which laid the groundwork for

the establishment of the Federal Circuit, heard extensive testi-

mony on the inherent dangers of specialized courts. Justice

Stevens, then of the Court of Appeals with the heaviest patent

caseload (the Seventh Circuit), cautioned that specialized

courts presented special risks for the administration of justice

in the federal courts.° The Seventh Circuit Bar Association

stressed that “specialization more often than not produces

judges who approach their cases with biases arising from their

limited experience,” and that “{oJur judicial system has tradi-

tionally compensated for this bias by providing appeals as a

matter of right from specialized trial courts to appellate courts

of general jurisdiction.”* The association also specifically ar-

gued that the “technical advisors” that had been proposed as

chambers staff for Circuit Judges in the Federal Circuit had no

place in review of federal district court judgments under Rule

52.

The Hruska Commission, heeding those warnings, cau-

tioned Congress that “Judges of a specialized court, given their

continued exposure to and great expertise in a single field of

law, might impose their own views of policy even where the

scope of review under the applicable law is supposed to be more

limited.”"

Congress responded to those concerns. After cautioning

that it would be improper to use technical advisors in adversary

patent infringement cases coming from the federal district

*Senate Judicial Committee, Subcommittee on Improvements in Judicial

Machinery, Position Paper of the Bar Association of the Seventh Judicial

Circuit on S-677 and S-678, 97th Cong., Ist Sess. 9 (1981).

° Id. at 7.

* Id. at 13 (emphasis supplied).

courts, the House Committee Report emphasized that “[iJt is

well established that factual issues in a patent case must be

tried and decided by the trial judge or a jury in precisely the

same manner as such issues are tried in any other kind of a

lawsuit,” and “it is the settled practice of the circuit courts of

appeals in patent cases to honor and respect Rule 52(a)

F.R.C.P.”

What Congress and the Hruska Commission feared has come

to pass as a matter of policy in the Federal Circuit. In this case

and the closely related pattern of cases discussed above,’ the

Federal Circuit has departed sharply from this Court’s teach-

ings in decisions such as Graver Tank & M anufacturing Co. v.

Linde Air Products Co., 336 U.S. 271 (1949), United States vs.

United States Gypsum Co., 333 U.S. 364 (1948), / nwood Labo-

ratories, Inc. v. Ives Laboratories, Inc., 456 U.S. 844 (1982)

and Pullman-Standard v. Swint, 456 U.S. 273 (1982).

Practically, there is no longer any basis for traditional

“conflict” jurisdiction in patent matters. The Federal Circuit is

the sole appellate court concerned with them. That should not

translate to carte blanche to depart from traditional principles

of equity, negligence and fraud.

Predictably, at least two of the new court’s own members

have repeatedly criticized their court’s usurpation of district

courts’ fact-finding. One of them has correctly remarked that

the new Court of Appeals “fails to recognize that this court and

(trial courts] are not a single court with both original and

appellate jurisdiction,” and is “improperly stepp[ing] into the

province of the fact finder.””

5H. Rep. No. 97-312, 97th Cong., Ist Sess 37 ( 1981)(emphasis supplied).

* See also Amstar Corp. v. Envirotech Corp., 730 F.2d 1476 (Fed. Cir. 1984;

cert. denied 105 S.Ct. 306 (1984); Lindemann v. American Hoist and Derrick

Co., 730 F.2d 1452 (Fed.Cir. 1984); Raytheon Co. v. Roper Corp., 724 F.2d 951

(Fed. Cir. 1983).

“Baginsky v. United States, 697 F.2d at 1077 (Kashiwa, J., dissenting);

Jones v. Hardy, 727 F.2d at 1534-35 (Kashiwa, J., dissenting); Accord, RCA

Corp. v. Applied Digital Data Systems, Inc., 730 F.2d at 1449 (Kashiwa, J.,

dissenting); Hughes Aircraft Co. v. United States, 717 F.2d at 1367 and n.2

(Davis, J., dissenting).

ane aston nea

Rule 52(a) and the related principles are important because

they are fair and crucial to the judicial function. They are also of

crucial importance to the effective functioning of the judicial

system:

The entire responsibility for deciding doubtful fact ques-

tions in a nonjury case should be, and we think it is, that of

the district court. The existence of any doubt as to

whether the trial court or this Court is the ultimate trier

of fact issues in nonjury cases is, we think, detrimental to

the orderly administration of justice, impairs the con-

fidence of litigants and the public in the decisions of the

district courts, and multiplies the number of appeals in

such cases.

Pendergrass v. New York Life Ins. Co., 181 F.2d 136, 138 (CA8

1950), quoted in 9 Wright & Miller, Federal Practice & Pro-

cedure § 2587 (1971).

The Federal Circuit’s decision here demonstrates that the

Congressional concerns were fully justified. Moreover, we re-

spectfully suggest that this Court, by repeatediy rejecting

petitions for certiorari on this very point, gives encouragement

to the Federal Circuit to continue to review cases de novo and

worse, to announce changes in the law and then apply that new

law by a de novo analysis, without affording the appellee a

remand. The other circuit courts have long recognized that

when changes in the governing principles of law or the facts

occur between the time a case is tried and the time it is

reviewed on appeal, the “preferred procedure” is to remand the

case to give the parties and the district court an opportunity to

consider the case in light of those changes. See e. g., Concerned

Citizens of Vicksberg v. Sills, 567 F.2d 646, 649-50 & n.5 (5th

Cir. 1978). Indeed, the appellate reporters are replete with

examples of decisions in which a remand has been routinely and

summarily ordered in several circumstances.

The present case presents a particularly good vehicle for this

Court to enunciate the proper scope of appellate review for the

new Court of Appeals, because it presents the problem sharply

and it involves several distinct categories of refusal to defer to

district court fact finding: Second-guessing the district court’s

assessment of witness credibility and the district court’s eval-

uation of a lengthy record; rejecting findings simply because

the Federal Circuit would have given greater weight to certain

evidence; citing legal issues in a manner inconsistent with

underlying findings that have not been held cleariy erroneous;

and making determinations of disputed factual issues, without

first remanding for further findings, in areas where the Federal

Circuit maintains that the district court had an erroneous view

of the law. In so doing, the Federal Circuit has now announced

that traditional equitable considerations will no longer apply to

the equitable defense of inequitable conduct and that well-

settled principles concerning the elements of fraud and negli-

gence will not be followed in the Federal Circuit. This Court

should issue appropriate instructions to the Federal Circuit

that it rejoin the federal judiciary.

INEQUITABLE CONDUCT IN PROCURING A PAT-

ENT WHICH FALLS SHORT OF ACTUAL FRAUD

SHOULD NOT AUTOMATICALLY RESULT IN ALL

CLAIMS OF A PATENT BEING UNENFORCEABLE

WITHOUT REGARD TO ANY EXTENUATING

EQUITABLE CONSIDERATIONS WHERE:

A. THE INEQUITABLE CONDUCT WAS THE

NONDISCLOSURE OF TWO PATENTS WHICH (1)

WERE IN THE EXAMINERS’ FILES .

THROUGHOUT THE FIVE YEARS OF PROSECU-

TION OF THE SUBJECT PATENT, (2) WERE IN

CLASSES AND SUBCLASSES THAT WERE RE-

PEATEDLY SEARCHED DURING THE PROSECU-

TION OF THE SUBJECT PATENT, AND (28) WERE

KNOWN TO THE PRIMARY AND ASSIGNED EX-

AMINERS AND WERE CITED BY THEM IN

OTHER PATENT APPLICATIONS.

B. THERE WAS NO EVIDENCE THAT ANY EX-

AMINER WAS AFFIRMATIVELY MISLEAD, NOR

WAS THERE ANY EVIDENCE THAT THE EXAM-

INERS DID NOT KNOW THAT THE PERTINENT

PRIOR ART WAS IN THE PTO FILES ACTUALLY

SEARCHED DURING THE PROSECUTION OF THE

SUBJECT PATENT.

C. NO CHARGE OR FINDING AS TO INEQUITA-

BLE CONDUCT WAS MADE WITH RESPECT TO

THE ONLY CLAIMS ASSERTED IN THE

LITIGATION.

D. THE CONDUCT FELL SHORT OF ACTUAL

FRAUD OR DELIBERATE MISREPRESENTA-

TION.

The Federal Circuit has long been tantalized by the question

of whether inequitable conduct toward the Patent Office ren-

ders a patent “unenforceable” or “invalid”, only a semantic

difference in many of the cases it decided." In our case,

however, the real importance of this issue is finally discussed by

the Federal Circuit.

Inequitable conduct is a common defense in patent infringe-

ment suits these days—too common says Judge Rich” and

others. But, the only permissible defenses to a patent infringe-

ment action are specified by 35 U.S.C. § 282" and it says

“Whether the holding should be one of invalidity or unenforceability has

had no practical significance in cases thus far presented to this Court and has

therefore not been addressed.” (/d. at 1560, A.-31a-31b.)

‘Par from the allegation that it ‘smacks of outright fraud’, we have rarely

seen a less meritorious presentation of this much abused and too often last-

resort allegation. It merits no further comment.” Preemption Devices, Inc.

v. Minnesota Mining and Manufacturing Co., 732 F.2d 903 at 908 (Fed. Cir.

1984)

1335 U.S.C. § 282 states:

A patent shall be presumed valid. Each claim of a patent (whether in

independent, dependent, or multiple dependent form) shal! be presumed

valid independently of the validity of other claims; dependent or multiple

dependent claims shall be presumed valid even though dependent upon an

invalid claim. The burden of establishing invalidity of a patent or any claim

nothing about “inequitable conduct” as a defense. The allowa-

ble defenses under § 282 against liability fall into two general

classes. The first arises out of conduct of the alleged infringer

or the patent owner himself, including for example, the taking

of a license by the alleged infringer or unenforceability in the

hands of the patent holder. With respect to this group of de-

fenses, the paterit remains presumably valid so that it may be

successfully asserted on another occasion at a later time. The

second class is that the patent or any claim thereof is invalid

because it fails to comply with certain requirements of the

patent statutes, namely those of Part II and §§ 112 and 251.

When this happens, the entire patent is bad, i.e. invalid. This is

merely recognition of the common law rule that all provisions of

a statute must be met to secure any right or privilege there-

under. The Federal Circuit observed that Part II and §§ 112

and 251 say nothing about “inequitable conduct,” and thus

cannot be grounds for invalidation of a patent. Consequently, as

the Federal Circuit reasoned, the defense of inequitable con-

duct can only be allowed under the statutory provisions of the

first class concerning “unenforceability.” This is an equitable

defense to liability created by court decision and, until this

case, was administered in the Federal Judicial System accord-

ing to well-established equitable principles.

The Federal Circuit also points to the common law rule that a

patent is completely invalid if it is invalid in part’ (/d.at

thereof shall rest on the party asserting such invalidity.

The following shall be defenses in any action involving the validity or

infringement of a patent and shall be pleaded:

(1) Noninfringement, absence of liability for infringement or

unenforceability,

(2) invalidity of the patent or any claim in suit on any ground specified in

part II of this title as a condition for patentability,

(3) Invalidity of the patent or any claim in suit for failure to comply with any

requirement of sections 112 or 251 of this title,

(4) Any other fact or act made a defense by this title.

* * *

4Bvans v. Eaton, 20 U.S. 356 (1822).

1561-1562; A. 35a), a truly “all or nothing” rule. Yet after

painstakingly establishing the equitable basis for the inequita-

ble conduct defense (Jd. at 1559-1561, A. 34a), the Federal

Circuit inexplicably tacks onto it the “all or nothing” rule,

which is by its terms obnoxious to any equitable doctrine." In

doing so, the Federal Circuit explicitly rejected a well-rea-

soned third circuit opinion, Jn re Multidistrict Litigation In-

volving Frost Patent, 540 F.2d 601, 611 (3rd Cir. 1976)

(“Frost”). The Frost court correctly found that equitable con-

siderations must be applied in determining whether all claims

are unenforceabie because of inequitable conduct with respect

to some, and aptly acknowledged that, because this defense is

founded on equitable notions, the courts “possess the equitable

discretion to choose whether to deny enforcement to the...

patent in part or in whole.” Jd. at 611; accord, Norton v.

Curtiss, 433 F.2d 779, 793 (C.C.P.A. 1970) (courts generally

apply equitable principles in evaluating charges of unenfor-

ceability due to fraudulent procurement), Pfizer & Co. v.

F.T.C., 401 F.2d 574 (6th Cir. 1968), (fraudulently procured

patent allowed limited enforceability).

The Federal Circuit relied on Norton v. Curtiss as authority

in holding all of the claims automatically unenforceable. If

anything, Norton stands firmly for the proposition that equita-

ble considerations must be considered where actual fraud is

not involved.

‘SThe Federal Circuit’s reliance on 35 U.S.C. § 288 discussed in In re Clark

(Id. at 1561; A. 34a) is misplaced. Section 288 concerns the effects of a finding

of statutory invalidity—a legal defense-—and provides relief from the com-

mon law “all or nothing” rule. As the Federal Circuit established, however,

the legal defense of invalidity (failure to comply with specified statutory

provisions) and the equitable defense of unenforceability are different. Thus,

§ 288 has no bearing on the application of the equitable defense; due to its

origins, that defense must be applied consistently with established equitable

principles. Under § 288, moreover, the phrase “deceptive intention” is not so

broad as to include gross negligence or recklessness, which may suffice to

satisfy the scienter requirement of a claim of inequitable conduct, but is

limited—as the Federal Circuit recognized—to cases of true “fraud” or

“deception.”

Moreover, the Norton court went on to discuss the process

by which the courts should evaluate misconduct after the pat-

ent issues, stating at 793:

A court might still evaluate the evidence in light of the

traditional elements of technical fraud, but will now in-

clude a broader range of conduct within each of those

elements, giving consideration to the equities involved in

the particular case.

* * * K *

In suits for patent infringement, unenforceability, as well

as non-infringement or invalidity under the patent laws, is

a statutory defense. See 35 U.S.C. § 282(1). We have

noticed that unenforceability due *» fraudulent procure-

ment is a rather common defense. /n such circumstances,

we find that the courts are generally applying equitable

principles in evaluating the charges of misconduct al-

leged to be fraudulent.

Lex Tex’s 912 patent contains both method and product

claims. The product claims are in independent form, i.e., they

do not define the products in terms of the process used to make

the product, and the product claims were held by the PTO to be

patentably distinct from the method claims.

35 U.S.C. § 284, dating back to 1952, distinguishes between

claims of a patent and the patent itself, and this distinction is

carried over to Rule 56 (Supra, p.1) which specifies that the

requisite materiality only exists when the undisclosed informa-

tion is important to the decision of allowing the patent applica-

tion to issue as a patent. But what when the undisclosed

information is material to only some of the claims (or a category

of claims, such as process claims) and the others of the claims

can issue as a patent despite the undisclosed information? Then

R#« 56 cannot defeat these other claims which can issue in a

patent, absent deceptive intent! Even the Patent Office doesn’t

have an all or nothing rule, and In re Frost does nothing more

nor less in a District Court context as the Patent Office does

internally. If the Patent Office, during prosecution, learns of

gross negligence on the part of an applicant—without decep-

—

tive intent—that affects only certain claims, the Patent Office

still has discretion to issue the patent with other claims not

affected by the gross negligence. In re Frost leaves a District

Court with the sa”.e discretion when confronted by the same

set of facts.

The Federal Circuit's wooden application of the “all or

nothing” rule was critical to its disposition of this case

and it is squarely in conflict with basic principles govern-

ing the equitable jurisdiction and powers of the federal

courts.

It has long been well-established that in equitable matters,

“the nature of the violation determines the scope of the reme-

dy.” Rizzo v. Goode, 423 U.S. 362, 378 (1976), quoting Swann v.

Charlotte-Mecklenburg Board of Education, 402 U.S. 1, 16

(1971). As the Eleventh Circuit—from within whose jurisdic-

tion this case arose—has recently emphasized:

Traditional equity principles are that the remedy should

be no broader than necessary to right the wrong... .

equity will not permit the application of a remedy that

goes further than is necessary to right the alleged wrong,

or protect the asserted right... . the relief [must be]

limited to the harm done.

Liberty National Insurance Holding Co. v. Charter Co., 734

F.2d 545, 560 n.32 (11th Cir. 1984). This same general rule has

often been acknowledged by other federal circuit courts. See,

e.g., Graves v. Romney, 502 F.2d 1062, 1064-65 (8th Cir. 1974);

Wheeling Steel Corp. v. American Rolling Mill Co., 82 F.2d 97,

100 (6th Cir. 1936).

By embracing the “all or nothing” rule and summarily dis-

carding the Frost decision as “not precedent in this court” (/d.

at 1561 n.8; A. 34a), the Federal Circuit reached an egregious

result which conflicts with these well-established rules govern-

ing the equitable jurisdiction of all federal courts. The Federal

Circeuit’s holding also erroneously compels the conclusion as a

matter of law that the product claims of Lex Tex’s 912 patent

are unenforceable, without regard to the clearly relevant equi-

table considerations that: |

1. The unenforceability ruling is based on nondisclosure of

two patents which were (a) in the Examiner's files throughout

the five years the 912 was under examination, and (b) were in

classes that were repeatedly searched during the '912

prosecution. "*

2. The 912 was prosecuted during 1957-1963, long before the

current version of 37 C.F.R. § 1.56." As the First Circuit

stated in Digital Equipment Corp. v. Diamond, 653 F.2d 701,

716 n.17 (1st Cir. 1981):

We note, in this regard, that the current version of Rule

56, promulgated in 1977, seems to adopt a definition of

materiality more expansive than that applied in “fraud”

cases such as Norton. The rule states that:

All {inventors, assignees, attorneys, etc.] have a duty

to disclose information they are aware of which is mate-

rial when there is a substantial likelihood that a rea-

sonable examiner would consider it important in de-

It has been consistently held that there is a distinction between conceal-

ment of prior art known only to the applicant and the non-disclosure of art

within the files of the PTO. Hercules, Inc. v. Exxon Corp., 207 U.S.P.Q.

1088, 1144(D. Del. 1980), for example, recognized, after reviewing numerous

decisions, that the courts are “reluctant to find fraud in an attorney’s failure

to cite prior art references,” and, at 207 U.S.P.Q. at 1114 n. 268, dis-

tinguished case involving the failure to disclose perjury, articles, prior use

and scientific data from those involving prior art known to the PTO. See also

Admiral Corp. v. Zenith Radio Corp., 296 F.2d 708, 716 (10th Cir. 1961),

which found it “{dJifficult . . . to under{stand] how Zenith could conceal from

the Patent Office the Andrews patent which was a public record.” Likewise,

the Federal Circuit's reliance on Norton v. Curtiss, supra, in this regard is

misplaced. As that court stated in footnote 13 at 433 F.2d 794: “The situation

is therefore not similar to that in which pertinent prior art is withheld when

no facts are represented to the Patent Office. We express no opinion on that

situation.”

"Argus Chemical Corporation v. Fibreglass-Evercoat Company, Inc.

(Appeal 84-1418 decision April 4, 1985), F.2d (Fed. Cir. 1985)

makes clear the Federal Circuit's view that an ex post facto application of the

Rule 56 standard will be followed in the Federal Circuit, even though a

different and less stringent standard existed in its sister circuits.

ciding whether to allow the application to issue as a

patent.

Such a “duty of disclosure” may well be desirable as a

matter of regulatory policy; we do not suggest that it could

not be applied prospectively in proper circumstances. It

would obviously be improper, however, to judge the con-

duct of these applicants retroactively in terms of a “duty”

created by a regulation promulgated years after the

events at issue.

See Union Carbide Corp. v. Filtrol Corp., 170 U.S.P.Q. 482,

515 (C.D. Cal. 1971), aff'd, 179 U.S.P.Q. 209 (9th Cir. 1973),

where that court relied on expert testimony by former Patent

Commissioner David L. Ladd to hold:

Carbide also established that there was no internal Patent

Office statement of policy or directive to the examining

corps which stated or suggested that an applicant or his

attorney was guilty of inequitable or improper conduct for

not citing art which did not anticipate. Mr. Ladd traced

’ the history of Patent Office and legislative proposals, be-

ginning in 1963, to broaden the duty of candor to include

an obligation relative to the citation of non-anticipatory

art. There has never heen any rule or statute which has

changed the obligation relative to the citation of non-

anticipatory art.

3. The evidence is overwhelming that the public benefited

from the products described by the claims in suit, which are the

basis for the widely used polyester suit and dress fabrics, and

the so-called polyester double knits. The popularity of these

fabrics was waning during the limited accounting period al-

lowed Lex Tex (May 31, 1977-June, 1980) yet the daiuages from

the three appellants alone covered more than 250,000,000

pounds of yarn, enough for 125,000,000 dresses at an average

weight of 2 pounds per dress, one for every female in the United

States. The public obviously found the product satisfier 1 sub-

stantial need, and the invention has met with tremendous

commercial success.

4. Both the district court and the PTO in the reissue proceed-

ing agreed that the 912 invention “differed markedly” from the

inventions described by the references said to have been with-

held. Of course, the asserted product claims were not even

challenged as being improperly issued.

5. There was no evidence that any Examiner was affirm-

atively mislead, nor was there any evidence that the Exam-

iners did not know that the pertinent prior art was in the PTO

files actually searched during the prosecution of the subject

patent.

In accordance with the settled rule of equity jurisprudence

that the remedy must not exceed the scope of the wrong, the

proper disposition of this issue requires the type of equitable

balancing, including consideration of these factors, recognized

in Frost supra. That balancing, moreover, should be consid-

ered in the first instance by the district court which heard all

the evidence and is familiar with the full facts of the case. Thus,

at the very least, rehearing and remand to the district court—

which, because it found no inequitable conduct, has never

considered this question—is necessary.

If the Federal Circuit’s ruling stands, the more than

$8,000,000 relief granted to willful infringers goes far beyond

the wrong found to have been committed by Lex Tex’s

predecessors.”

The Federal Circuit's New Concept of Inequitable Conduct

The Federal Circuit's opinion recognizes that conduct short

of fraud can render a patent unenforceable. If, as here, actual

fraud is not involved, then that conduct must constitute gross

negligence. Of course, in order ‘or there to be a legal conclusion

of fraud or gross negligence, each of the elements of those torts

must be met, including the element of causation. The Federal

Circuit has now stated that if an applicant breaches his duty to

disclose material prior art the result is that all claims of the

patent are then unenforceable. Furthermore, this result fol-

‘* Compare the maximum monetary sanction for violating the antitrust

laws—$1,000,000. 15 U.S.C. § 1. (Prior to 1974, even that sanction was but

$50,000). Unfortunately, the Federal Circuit did not even consider the equita-

ble principle of remittitur, which could be properly considered by the district

court on remand.

lows automatically without any consideration of the other

elements of the tort. Ironically, the Federal Circuit correctly

noted that knowledge by the original examiner of the uncited

references would preclude a finding of an (sic—should be)

inequitable conduct (Jd. at 1563; A. 38a). Unfortunately, their

reasoning was flawed as this conclusion was reached on the

basis that knowledge by the examiner of the references would

preclude a finding of materiality, and, necessarily, inequitable

conduct. Of course, the materiality of a reference does not

depend on whether or not an examiner is aware of it. Re-

gardless of the materiality of a reference, if the examiner knew

of it and didn’t cite it, the failure of the applicant to tell him of it

can’t be the legal cause of his failure to cite it. By requiring Lex

Tex to have proved non-materiality by showing actual knowl-

edge by the Examiner, the Federal Circuit shifted the burden

of proof on the issue of causation and destroyed Lex Tex’s patent

rights without affording it a remand to meet this new burden.

Indeed, the Federal Circuit’s analysis of Lex Tex’s conduct

removes causation as an element.

Assuming arguendo that Rule 56 of the PTO accurately

describes the duty of a patent applicant prior to 1963 (the

subject patent issued in 1963), unless the breach of that duty

affirmatively misled the Examiner, it should not result in all

claims of a patent being found unenforceable. The Federal

Circuit acknowledged the proofs and findings below which

make it clear that the subject prior art was known to the PTO

long before the patent issued. (Jd. at 1563-64; A. 38a) Indeed,

the examiners involved with the ’912 application knew of this

other prior art. Thus, whatever the duty of disclosure might

have been, in this case the breach of that duty did not cause the

patent to issue.

The Federal Circuit then considered the trial court’s finding

that it was possible that the examiner knew of the references,"

‘Chief Judge C. Clyde Atkins’ finding of fact 16: “It is possible that the

Primary Examiner in the original '912 application knew of the Weiss patent as

he was previously also the Primary Examiner in Charge of the U.S. Weiss

application, and conducted six prior art searches in connection with the

prosecution of the "912 patent, the classes of which included the Weiss

but took issue with the way in which the trial court expressed

its finding. In the Federal Circuit’s words, “where inequitable

conduct is at issue, mere possibilities are insufficient.” (Jd. at

1564; A. 39a). Thus, due to what it perceived to be a semantic

insufficiency in the trial court’s finding, the Federal Circuit

rejected the undisputed evidence which both supports the

finding and compels the conclusion that no inequitable conduct

occurred.

The Federal Circuit’s treatment of this dispositive issue is

seriously flawed. By so ruling, the Federal Circuit improperly

penalized Lex Tex for the imprecision of the trial court’s finding

and for the absence of a more specific “finding,” in a form

satisfactory to the Federal Circuit, on this factual issue. More

importantly, however, the Federal Circuit implicitly placed on

Lex Tex the affirmative burden of showing—of proving—actual

knowledge by the examiner of the references. The imposition of

such a burden on the patentee is inconsistent with the Federal

Circuit’s recent decisions regarding this precise issue, Richdel

Inc. v. Sunspool Corp., 714 F.2d 1573, 1579 (Fed. Cir. 1983); cf.

Kimberly-Clark Corp. v. Johnson & Johnson, 745 F.2d 1437

(Fed. Cir. 1984), and several of its decisions addressing the

burden of proof generally with respect to invalidity or unenfor-

ceability defenses. E.g., American Hoist & Derrick Co. v.

Sowa & Sons, Inc., 725 F.2d 1350, 1360 (Fed. Cir. 1984), cert.

denied, 105 S.Ct. 95 (1984).

As stated in Norton vs. Curtis “We must emphasize that

while we have recognized the requirement that the provisions

of Rule 56 be interpreted more broadly in this area of inequita-

ble conduct the burden of proof has not changed. *** Thus the

one asserting misconduct has a heavy burden of persuation.

433 F.2d at 797

As the Federal Circuit made clear in Richdel, it is error for a

trial court to require a patentee to prove that prior art relied on

patent”. (A.-5a) Finding of Fact 24 “Da Gasso discloses an apparatus for

processing torque stretch yarn. It is possible that the primary examiner of

the 912 application knew of Da Gasso as he was also the primary examiner of

co-pending application ('724) of the inventors of the ‘912 against which Da

Gasso was unsuccessfully cited.”

by an attacker had been considered by the PTO. (714 F.2d at

1579) Rather, as that opinion emphasized, the burden is on the

attacker to show that prior art had not been considered, par-

ticularly where the prior art was in the classes and subclasses

repeatedly searched. Consistent with these principles, the

Federal Circuit, if it had any question regarding the sufficiency

of the trial court’s finding, could either remand the case for a

more specific finding or find that the examiner likely did know

of both references.

The Federal Circuit’s failure to properly address this issue

continued with its further citation of and reliance on Driscoll v.

Cebalo, 731 F.2d 878. (Fed. Cir. 1984), decided long after judg-

ments were entered below, for the proposition that “[{i]t cannot

be presumed ... that the PTO considered the prior art of

particular relevance if it was not cited.” (Jd. at 1564; A. 39a).

The court’s reliance on this case is misplead. If Lex Tex did not

have the burden (and it should not) of proving that the exam-

iner had knowledge of the uncited prior art, it did not need to

rely on a presumption that the reference was discarded by the

examiner as irrelevant. If as stated in Norton vs. Curtis, the

burden of proof has not changed, then, that burden was on the

party asserting misconduct to prove that the reference was not

considered. Thus, this holding is not only in conflict of prior,

well-reasoned opinions of other circuit courts, it also repre-

sented the application in this case of a principle of law different

from that which was correctly viewed x. controlling by the

district court at the time that the case was tried. Bluntly put—

in a case of first impression the Federal Circuit reversed on

precedent established after Lex Tex’s trial below, and refused to

remand.

Prior to the Federal Circuit’s decision here and earlier deci-

sion in Driscoll v. Cebalo, the law appeared to be well-settled

that it would be presumed that the examiner, in conducting his

prior art searches, considered references classified in the fields

searched, regardless of whether the examiner cited the refer-

ences. The leading decision in this area was authored by Chief

Judge Markey of the Federal Circuit, sitting by designation on

the Eight Circuit in 1980. E.J. duPont de Nemours & Co. v.

Berkley & Co., 620 F.2d 1247 (8th Cir. 1980).” Although the

decision in the instant case was also authored by Chief Judge

Markey, for some inexplicable reason the duPont v. Berkley

decision was never mentioned even though it is precedent for

an opposite result. This presumption—like the Richdel holding

noted above—is also fully consistent with the well-settled rule

that the burden is on the attacker to prove each element of any

validity defense. It therefore was properly embraced by the

trial judge beiow.

With its Driscoll decision and the Federal Circuit’s ruling

herein, however, the Court has enunciated a new principle: that

this presumption, for some unexplained reason and without

any consideration of Judge Markey’s well-reasoned decision

does not apply “where fraud or other egregious conduct is

alleged.” (Jd. at 1564, quoting Driscoll, 731 F.2d at 885). Of

course, even if no presumptious whatsoever existed on this

point, the throwsters still had the burden of proof to establish

that the Examiners did not know of the prior art. Because of

this change with respect of this critical issue, coupled with the

new burden of proof placed on Lex Tex by the Federal Circuit,

Lex Tex has been deprived of the opportunity to present the

evidence which the court has now ruled it must present in order

to prevail. In accordance with well-settled principles of appel-

late procedure, this case must be remanded to the district court

to give Lex Tex that opportunity.

Without question, Lex Tex can meet this burden, if it must,

in a simple and unrebuttable fashion: By reference to other

*~Accord, Wolens v. F. W. Woolworth Co., 703 F.2d 983, 992-93 (7th Cir.

1983); Clairol, Inc. v. Save-Way Industries, Inc. 210 U.S.P.Q. 459, 467 (S.D.

Fla. 1980); Farmhand, Inc. v. Lahman Mfg. Co., Inc.., 192 U.S.P.Q. 749, 762

(D. S.D. 1976) aff’d, 568 F.2d 112 (8th Cir. ); cert. denied, 436 U.S. 913, 197; 98

S.Ct. 2254 (1978); Union Carbide Corp. v. Filtrol Corp., 170 U.S.P.Q. 482,

516 (C.D. Cal. 1971), aff’d, 179 U.S.P.Q. 209 (9th Cir. 1973); Plantronics,

Inc. v. Roanwell Corp., 403 F.Supp. 138, 150 (S.D.N.Y. 1975), aff’d, 535 F.2d

1397 (2d Cir.), cert. denied, 429 U.S. 1004, 97 S.Ct. 538 (1976); Becton,

Dickinson & Co. v. Sherwood Medical Industries, 516 F.2d 514, 524 n.30 (5th

Cir. 1975); Reinke Mof. Co., Inc.v. Sidney Mfg. Corp., 446 F. Supp. 1056 (D.

Neb. 1978) aff’d, 594 F.2d 644 (8th Cir. 1979); Bordon, Inc. v. Occidental

Petroleum Corp., 381 F. Supp. 1178 (S.D. Tex. 1974).

patents prosecuted in the same time period in which the same

examiners cited the very same references which the Federal

Circuit assumed were unknown to them. In the Appendix at

Page 5lais a table of six United States Letters Patent. The first

two are the Lex Tex patents. The remaining four are unrelated

to Lex Tex. The dates of prosecution all overlap. The primary

and assistant examiners are largely the same. The two refer-

ences (Weiss and Da Gasso) alternatively are cited in each.

These other patents establish a simple fact: The same exam-

iners knew about the same references during the same time

period. The Federal Circuit assumed otherwise and that er-

roneous assumption was central to its opinion in the present

case.

CONCLUSION

Prior to the decision in this case, the law was clear that the

one asserting misconduct carries a heavy burden of persua-

sion. Norton vs. Curtis, 433 F.2d 779, 797 (1970) Moreover, and

more importantly, the court there stated “while we must em-

phasize that while we have recognized the requirement that the

provisions of Rule 56 be interpreted more broadly in this area of

inequitable conduct, the .ule as to burden of proof has not

changed”. 433 F.2d 797.

The case at bar is one of those cases involving allegations of

failure to cite important prior art, which is said to constitute

“inequitable conduct” so as to render the claims unenforceable.

The case, although not unique, presents somewhat different

considerations since the so-called “uncited prior art” can be

shown to be in the records searched by the original examiner.

In such a situation, in the absence of a change in the law as to

who has the burden of proof, the party asserting the alleged

misconduct must show that the “original” examiner had no

knowledge of this prior art which at the very least must be

conceded as being a matter of public record and surely imputed

to the Patent & Trademark Office. Again, prior to this case no

less an authority than Judge Markey wrote an appellate opin-

ion holding that the examiner who searched such records is

presumed to know what is in the records. E.J. duPont v.

Berkley & Co., 620 F.2d 1247 (8th Cir. 1980) In light of this

background it seems abundantly clear that a party who asserts

“inequitable conduct” in failing to cite pertinent prior art would

have the burden of proving as a matter of fact that the examiner

in question had no knowledge of pertinent art that was a matter

of public record and which as an examiner he is presumed to

know. Petitioner concedes that in light of the court’s ruling in

Driscoll v. Cebalo Co., 731 F.2d 878 (Fed. Cir. 1984) that the

mere fact that an examiner searched an art class containing

certain reference does not lead as a matter of law to the pre-

sumption that the reference was discarded by the ecaminer as

irrelevant. However, such a presumption is not necessary for a

patentee to prevail on the issue. Rather, the burden of proof

stays with the party asserting misconduct to make out at least

a prima facie case that the original examiner did not have actual

knowledge of this art which he is presumed to know about. In

the absence of some evidence that the examiner did not know of

this public information the defense must fail. From an equita-

ble point of view, this is a proper result. Material or prior art

that is not only public information but is actually in the Patent

Office records is not the type of information that gives rise to

the need for a “duty of candor”. As stated in Norton v. Curtis,

the highest standards of honesty and candor on the part of

applicants in presenting such facts are thus necessary ele-

ments in a working patent situation. However, the court here

was making re“erence to situations where the Patent & Trade-

mark Office had to rely on applicants for certain facts upon

which its decisions are based. Information such as a prior art

reference already known to the Patent & Trademark Office and

in its records is not the type of fact known only to the applicant

and upon which the Patent & Trademark Office must rely on

applicant to disclose. Such facts do not require testing, analysis

or investigation.

That the Federal Circuit in the present case shifted the

burden of proof to Lex Tex is without question. We quote at

length from the opinion beginning at page 20 which states:

“The district court also noted the possibilities that the primary

examiner of the ’912 patent: (1) knew of Weiss because he was

also the primary examiner of the United States counterpart to

Weiss and conducted prior art searches in classes that included

Weiss; and (2) knew of DeGasso because he was also the pri-

mary examiner of the ’724 application, in which DeGasso was

cited. If the primary examiner actually knew about the Weiss

and DeGasso references when examing the ’912 application,

that knowledge might preclude a finding of materiality. ...

However, the district court did not find actual knowledge by

the primary examiner—it merely noted possibilities and,

where inequitable conduct is at issue, mere possibilities are

insufficient . . . There is no evidence, and Lex Tex does not

argue on appeal, that the primary examiner actually recalled

the critical aspects of the U.S. Weiss or DeGasso patents. Nor

is there evidence that the examiner principally responsible for

examining the application, as opposed to the primary exam-

iner, had knowledge of the references’ and in footnote 10: “Nor

did appellee show that the examiner primarily responsible for

examining ’912 was primarily responsible for examining the ©

U.S. Weiss and ’724 applications. ... the examiner of the

application had been the examiner of the reference.

The Federal Circuit admits that “knowledge” might preclude

a finding of materiality. The court goes on to state “the district

court did not find actual knowledge by the primary examiner, it

merely noted possibilities and where inequitable conduct is at

issue mere possibilities are insufficient”.

This bit of rhetoric sounds compelling, however; it evidences

either a total lack of understanding of the law or a dramatic

departure from the existing law. In either case, it is enough to

warrant a remand. As stated in Norton, the burden of proving

this defense resides with the party asserting it. It was not Lex

Tex’s burden to establish even the possibility that the examiner

knew of uncited art—Lex Tex did not even have to prove that

much in order to prevail. The burden is on the party asserting

the defense to establish the pertinent prior art was not known

to the examiner. Since in our case the District court found it

was'a possibility, there is not even reason for a remand since the

record establishes that the moving party did not carry its

heavy burden.

The “Reissue” Problem

Despite the view of other Circuit Courts holding the

results of reissue proceedings meaningless, In re Dien, 689

F.2d 151 (CCPA 1982) Bally Mfg Corp. v. Diamond, 629

F.2d 955 (4th Cir. 1980), the CAFC uses such findings to

overcome the deficiency in the throwsters’ proofs which is

clearly erroneous. The throwsters had the burden or prov-

ing that the method claims (not in issue) would not have

been issued had the primary examiner known of the so-

called uncited prior art and that as a matter of fact he did not

know of the reference.

This is so since the examiner is presumed to have known

of this prior art and Lex Tex had the right to rely on that

presumption (DuPont v. Berkley, swpra) Accordingly, in

order for the throwsters to discharge this burden, they had

to make out at least a prima facie case as to the actual

knowledge of the original examiner with respect to this art

presumed to be known in 1963. This the throwsters failed to

do. Admittedly in a situation where relevant prior art is

alleged to have been withheld and there is no basis for

presuming it was known to the original examiner, the party

asserting the defense can discharge its burden by showing

what action a “reasonable examiner” would have taken with

respect to the allowance of the claims in view of the pre-

viously uncited prior art. This however is not our case. Such

a showing where the examiner is presumed to “know” of the

art is inappropriate. Nothing short of a showing of the

actual knowledge of the original examiner at the time will

discharge the burden. As stated above, the Federal Circuit

attempts to substitute the findings of the “reissue” proceed-

ings. THIS IS NOT THE TEST. The burden of the in-

fringers was to show that as a matter of fact the original

examiner did not have actwal knowledge of the uncited prior

art. Only after that fact was established could the question

as to whether a “reasonable examiner” would allow the

claims be addressed. This is a case where what the situation

was in 1963 must be proven. This is simply not a situation

where what a reasonable examiner would do under the

circumstances is enough. . . What the actual examiner did

(and knew) is what must be proven in order to prevail.

Inequitable Conduct—The Standard

The question of the appropriate standard for determining

inequitable conduct in procuring a patent is one of law. Argus

Chemical Corp. v. Fiber Glass Overcoat Co., Inc. __— F.2d

__ (Fed. Cir., 1985) The more important question is what is

the standard?

In order to properly address this question, we would like to

quote extensively from Norton v. Curtis, supra. Beginning at

page 792, the Court states:

We note first that traditionally, the concept of “fraud”

has most often been used by the courts, in general, to

refer to a type of conduct so reprehensible that it could

alone form the basis of an actionable wrong (e.g., the

common law action for deceit). That narrow range of con-

duct, now frequently referred to as “technica!” or “affir-

mative” fraud, is looked upon by the law as quite serious.

Because severe penalties are usually meted out to the

party found guilty of such conduct, technical fraud is

generally held not to exist unless the following indispen-

sable elements are found to be present: (1) a representa-

tion of a material fact, (2) the falsity of that representa-

tion, (3) the intent to deceive or, at least, a state of mind so

reckless as to the consequences that it is held to be the

equivalent of intent (scienter), (4) a justifiable reliance

upon the misrepresentation by the party deceived which

induces him to act thereon, and (5) injury to the party

deceived as a result of his reliance on the misrepresenta-

tion. See, e.g., W. Prosser, Law of Torts. §§ 109-05 (3d

ed. 1964); 37 C.J.S. Fraud § 3 (1948).

Then, at page 794, the Court states:

We have found it helpful to approach the law to be

applied here on an analytical basis, considering seriatim

each one of the elements of “technical” fraud, as we listed

them earlier, and determining in what manner it has been

affected by the broadening of the concept of ‘fraud’ before

the Patent Office. We will then evaluate Norton’s charges

in light of that determination.

Clearly the court had in mind that the defense of fraud “should

be broadened”. It appears what the court intended was to set

up a standard whereby each element of common law fraud

would be viewed and assessed in light of any relevant equitable

considerations that would bring about an equitable result even

though a particular technical requirement might not be met. If

this is so, then the party that is asserting the defense should

first present facts such as would comply with the legal or

technical requirements and then broaden the scope of the de-

fense by proof of equitable considerations such as would be

essential to justify the imposition of a severe penalty. Of

course, the burden of proof remained upon the party asserting

the misconduct to prove facts that would justify holding a

patent unenforceable.

Since Norton vs. Curtis was decided, the basic elements of

“materiality” and “intent” have been significantly broadened.

However, the case sub-judice goes far beyond anything consid-

ered to date since it deals with the situation in which pertinent

prior art was withheld when no facts are represented to the

Patent & Trademark Office. About this Norton vs. Curtis

expressed no opinion. (Footnote 13 at 433 F.2d 794)

Norton vs. Curtis applied a standard whereby each element

of “fraud” was analyzed seriatim and a determination made as

to the manner each element was affected by the broadening of

the condept. Norton v. Curtis, 433 F.2d at 794. However, the

court there never suggested that any of the basic elements of

“fraud” would be completely ignored. The Federal Circuit in

our case states “Once the thresholds of materiality and intent

are established, the court must balance them and determine as |

a matter of law whether the scales tilt to a conclusion that

inequitable conduct occurred. If the Court reaches that con-

—s

clusion, it must hoid that the patent claims at issue are unenfor-

ceable”. If we accept this statement at face value and focus on

the expression “thresholds” one can only conclude that the

court here intended to relieve the party asserting the defense

from the additional burden of establishing “causation” or “re-

liance and injury”. This conclusion is strengthened by the fact

that the court as indicated above shifted the burden to Lex Tex

to prove these elements. The court indicated that it would be

Lex Tex’s burden to prove that the examiner had “actual”

knowledge of the reference. This would impose the burden on

the applicant to prove that he was not the cause of the claim

being allowed by the Examiner without consideration by the

Examiner of the uncited prior art. If the law is now that the

burden of proof shifts to the patentee once the “thresholds” of

materiality and intent are established, this is the first case even

to enunciate such a rule. It certainly was not the law at the time

this case was tried in the District Court. Anything short of

permitting Les Tex the opportunity on remind of presenting

evidence and establishing that the examiner did, in fact, have

knowledge of the “uncited art” would be a travesty. Petitioner

contends, however, that this decision if it has the effect of

shifting burden of proof should be reversed. To place or shift

the burden of establishing reliance, causation or injury to the

party being accused, is contrary to the traditional concepts of

law or equity. Surely this is a dramatic departure from the law

as enunciated in Norton vs. Curtis, which was the basis upon

which the case was tried in the District Court. Can it be as the

Federal Circuit has stated that only materiality and intent

need be established without regard to the remaining essential

elements such as “reliance and injury”. . . Reliance and injury

are the two remaining elements to be considered. Norton v.

Curtis, 433 F.2d 796. The burden of proof was on the infringer

to prove “reliance” and “injury”. Although petitioner concedes

these elements may be broadened by equitable considerations,

the fact remains they are “elements” to be established and

proven. The Federal Circuit cannot, at this late stage, ignore

these essential elements of the standard needed to establish

“inequitable conduct” as a matter of law.

Until the instant case there was no authority to support the

proposition that in the absence of a “misrepresentation” a pat-

entee could be denied the benefit of his patent for having failed

to bring relevant art to the attention of the Patent Office. The

Federal Circuit by applying a rule adopted in 1977 imposes

upon the patentee in our case a duty to “disclose prior art”

albeit “known prior art”. Having created this duty, the Court

then concludes that the failure to do so is tantamount to or the

equivalent of conduct akin to the false representation of a

material fact with the intent to deceive. It then goes on to

establish “materiality and intent”. The pivota! question,

however remains—can it then ignore “reliance and injury”?

The answer is positively not. These are essential elements to be

met even if broadened by equitable considerations. Causation

must always be an issue in a case that results in taking of

valuable rights.

As stated in Norton v. Curtis, the element required at com-

mon law was: a justificable reliance upon the misrepresentation

by the party deceived which induces him to act thereon. As-

suming arguendo that failure to bring information to the office

is akin to a misrepresentation can it be (or has it been) estab-

lished that the examiner was deceived and induced to act. It

could be shown that the examiner was deceived if it could be

shown that he had no knowledge of the prior art. This, of

course, is the burden of the party asserting the misconduct and

there is no evidence in this record that the examiner was

deceived and induced to act.

Respectfully Submitted

JAMES W. CRABTREE

SMATHERS & THOMPSON

2170 Charlotte Plaza

Charlotte, N.C. 28244

ROBERT C. MILLER

OBLON, FISHER, SPIVAK,

MCCLELLAND & MAIER, P.C.

1755 S. Jeff Davis Hwy.

Arlington, Va. 22202

APPENDIX

APPENDIX A

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF FLORIDA

MDL DOCKET 82

In Re Yarn Processing

Patent Validity Litigation

FINDINGS OF FACT

AND CONCLUSIONS OF LAW FOR PHASE II

During the period from June 29 through July, 10, 1982,

Phase 1II of MDL 82 was tried to the Court. Phaze II included

the equitable defenses of unenforceability, laches and estoppel.

The Court announced its decision prior to the trial of Phase III

which began on December 1, 1982. The Court having consid-

ered the evidence and argument presented at the Phase II

trial, the parties’ supporting memoranda and proposed find-

ings of fact and conclusions of law, and being otherwise duly

advised, hereby makes the following findings of fact and con-

clusions of law on the equitable defenses.

FINDINGS OF FACT

UNENFORCEABILITY

1. Plaintiff, Lex Tex Ltd. Inc. (Lex Tex), is a Florida corpora-

tion with its principal place of business in this judicial district.

Lex Tex is the owner, by assignment, of U.S. Letters Patent

3,091,912 ('912). The ’912 is directed to methods of continuously

producing textured synthetic yarn, such as nylon or polyester,

as well as certain yarns produced by such methods. The appa-

ratus usually employed to make such yarn is commonly re-

ferred to as a “double-heater” machine, and the yarns produced

on such machines are now usually referred to as “set” yarns.

2. The defendants include Burlington Industries, Inc., J.P.

Stevens, Inc , Avtex Fibers, Inc., Unifi, Inc., Dow Badische,

Inc. and Monsanto Corporation. These defendants are known

as “Throwsters.” Throwsters are manufacturing concerns

which perform the manufacturing steps which convert syn-

thetic yarn from one form to another.

3. Lex Tex sued the Throwsters for infringement of its 912

patent, but the only claims asserted in this litigation are some

of those directed to the yarn itself, i.e., 24, 26, 27 and 31.

4. Presently before the Court for consideration is the equita-

ble defense, raised by each Throwster, that the ’912 patent is

unenforceable by Lex Tex by reason of inequitable conduct and

fraud on the part of Lex Tex’s predecessors in interest during

the prosecution of the application for the 912 patent. Addi-

tionally, Burlington, J.P. Stevens and Avtex Fibers have as-

serted the equitable defenses of laches and estoppel.

5. The application for U.S. Patent 3,091,912 was filed in the

United States Patent and Trademark Office (PTO) on April 19,

1957 and was assigned Serial No. 653,953 (the “’912 applica-

tion”). The ’912 application was filed in the names of Warren A.

Seem and Nicholas J. Stoddard, as joint inventors. Universal

Winding Company (now, by change of name, Leesona Corpora-

tion) was the owner of the application and of the subject matter

disclosed and claimed therein. The ’912 application was pend-

ing in the U.S. Patent Office from April 19, 1957 to June 4,

1963.

6. Following the Fifth Circuit Court of Appeals’ decision, Jn

re Yarn Processing Patent Validity Litigation, 541 F.2d 1127

(5th Cir. 1975), cert. denied, 483 U.S. 910 (1977), which held

that Lex Tex had misused its patents, Lex Tex commenced

infringement actions outside this judicial district against vari-

ous Throwsters, alleging infringement of Lex Tex's Patent

3,091,912 (’912).

Those actions were subsequently transferred to this forum

pursuant to 28 U.S.C. § 1407 as “tag-a-long” cases. Following

the initial consolidated proceedings and a partial summary

judgment on liability issues, a number of the Throwsters filed

declaratory judgment actions in this district, limited to the

issue of purge of misuse, which were then consolidated for trial

of that issue.

A separate trial limited to the issue of purge was held before

this Court during March and April, 1979. A Memorandum

Opinion was filed on June 12, 1979, ruling that Lex Tex had

purged the misuse previously adjudicated by the Fifth Circuit

Court of Appeals, but had not done so until May 31, 1977.

Following entry of this Court’s June 12, 1979 Memorandum

Opinion, Lex Tex amended its pleadings for the purpose of

filing counterclaims in each of the declaratory judgment actions

by the Throwsters. In its counterclaim, Lex Tex asserted in-

fringement of the ’912 patent.

7. In an Order on reissue motions dated September 7, 1979,

this Court granted the motion of the Throwsters to compel Lex

Tex to file an application in the PTO for reissue of the ’912

patent. The Court sought to have an expert evaluation of cer-

tain patents which the Throwsters contended were more mate-

rial than the prior art considered by the PTO in its examination

of the original ’912 application. The Throwsters were permitted

to participate in the expedited reissue proceedings.

8. As a consequence of the PTO reissue proceedings, the

PTO concluded that the invention of the ’912, as specified in

Claims 2, 9, 10,.11, 12, 18, 14, 16, 24, 25, 26, 27, 28, and 31

(hereinafter called the “verified” claims) was neither obvious

within the meaning of 35 U.S.C. § 103, nor anticipated within

the meaning of 35 U.S.C. § 102, in view of any of the prior art

cited by the Throwsters and considered by the PTO in the

reissue proceeding.

9. In the reissue, the PTO repeatedly distinguished the

disclosures of the invention of the 912 from those of Weiss and

Da Gasso, finding that the disclosure of the ’912 differed mark-

edly from that of Weiss and Da Gasso:

It is of course true and the Examiner has so acknowledged

that Applicant’s disclosure differs markedly from the ref-

erences. (See paragraph 33 of the PTO Official Action

dated 4/10/80, Court Exhibit 2).

Insofar as the three primary references (’983 Belgian; ’802

British; and ’481 Italian) are concerned, the Examiner is

in basic agreement with Applicant with regard to what

they teach; what their limitations are; and how, they differ

from Applicant’s more detailed disclosure. . . . That is,

regardless of the fact that there are substantial dif-

ferences between the references and Applicant’s dis-

closure, . . . (See paragraph 7 of the PTO Official Action

dated 4/10/80, Court Exhibit 2).

10. The consistent claim construction urged in the original

application and in the reissue application makes it clear that the

original applicants and then Lex Tex believed that the inven-

tions of Weiss and DaGasso were materially different from the

"912. (T. 5507-5510). The Weiss and Da Gasso references are

markedly different from the disclosure of the ’912. This dif-

ference indicates that the inventions involved are significantly

differer’ and the claim language that the patentees have been

consis‘ ntly relying on to distinguish their invention over

Weiss und Da Gasso has some genuine technological base.

11. The Weiss patent discloses a discontinuous autoclave

method of batch processing a stretch yarn which itself has been

produced by an autoclave batch process. (T. 5397).

12. Weiss does not disclose nor claim a continuous process by

which it is possible to control the correlation of tension and

heat. (T. 5397-98).

13. Weiss does not disclose a process capable of producing a

uniform yarn as claimed by the application in the claims in

litigation. (T. 3843-44). A batch process reference (U.S.

2,564,245 Billion) such as Weiss was considered by the PTO in

the examination of the original application. (’912 File wrapper,

page 58). This reference was overcome by the applicant’s con-

tention that a batch process was incapable of producing a

uniform yarn of the kind claimed by applicant (File wrapper

"912, page 60). Weiss is therefore less relevant than Billion

because Weiss requires two batch processes.

14. Sharply divided testimony was given as to the mate-

riality of Weiss. At best, there is a division among the experts

as to whether, from a technological point of view, Weiss is as

relevant or more relevant than the art before the PTO in

connection with the original application. (T. 5397). There is,

however, no clear and convincing evidence that the applicants

or their attorney, believing Weiss to be relevant, intentionally

withheld it from the PTO or that they acted with recklessness

or gross negligence. While the evidence as to the materiality of

Weiss is in conflict, it does represent an honest difference of

opinion of reasonable men expert in the art.

15. During the pendency of the application for the ,912

patent, the applicants and their attorneys did not cite or call

the attention of the Patent Examiner to Weiss British Patent

710,802, or to any counterpart thereof, including Weiss U.S.

Patent 2,766,505. During the pendency of the application for

the 912 patent the Patent Examiner did not cite the Weiss

patent.

16. It is possible that the Primary Examiner in the original

’912 application knew of the Weiss patent as he was previously

also the Primary Examiner in charge of the U.S. Weiss Ap-

plication, and conducted six prior art searches in connection

with the prosecution of the ’912 patent, the classes of which

included the Weiss patent. (T. 5524-25).

17. During the pendency of the application for the ’912 pat-

ent, the patent applicants and Leesona, including Leesona’s in-

house patent counsel, Albert P. Davis, became aware of the

existence of the Weiss British Patent 710,802. (DX 1870) (Mem-

orandum from Richardson to Davis). There is, however, no

clear and convincing evidence that the applicants or their at-

torney intentionally withheld Weiss from the PTO or that they

acted with recklessness or gross negligence in failing to dis-

close Weiss.

18. The law firm of Howson & Howson, Philadelphia, Penn-

sylvania, was responsible for prosecuting the application No.

653,953 (the “’912 application”) before the PTO during the

entire period that the application was pending.

19. During the pendency of the ’912 application, Howson &

Howson filed, on behalf of the applicants, Stoddard and Seem,

a number of foreign counterpart applications.

20. Of the counterpart applications which were made as to

the 912, some evidence was presented as to the Japanese,

German and British applications. While the Japanese and Ger-

man applications were rejected over the Weiss patent, the

British 912 counterpart was allowed over the British Weiss

patent. There is no clear or convincing evidence that the failure

to advise the PTO of the German and Japanese applications

evinced any deceptive intent on behalf of the applicants or their

attorneys. There also is no clear and convincing evidence that

the applicants or their attorneys acted with gross negligence or

recklessness in failing to advise the PTO of the foreign applica-

tions and the rejection of the Japanese and German ’912 coun-

terparts over Weiss. While the applicants were aware of the

.Weiss patent, there was no recognition on their part of its

materiality or relevance because of the differences in the patent

laws of these foreign countries as to disclosure, claims practice,

forms of applications and standards of patentability.

21. In March of 1957, Leesona introduced to the throwing

industry the Model #511 attachment (511 attachment) for re-

processing of torque stretch yarn. Heberl.ein, the owner of the

Weiss patent, threatened legal action against the sale of

Leesona’s 511 machine. (T. 4965) On July 1, 1957, Universal

Winding Company entered into an agreement with Heberlein

& Co. regarding the 511 attachment. The agreement included a

license to Universal Winding Company under certain of the

Weiss patents which were counterparts of British Patent No.

710,802. Heberlein released Universal and the purchasers and

users of Universal's Type 511 reprocessing attachment from all

liability for infringement or contributory infringement of the

Heberlein Re-processing Patent Rights insofar as the 511 at-

tachment is used for the thermal re-processing of stretch yarn

which has been produced under license from Heberlein.

22. Universal Winding’s (and later Leesona’s) concern with

obtaining licenses under Weiss in Europe supports an in-

ference that this was an economic decision based upon a desire

to avoid costly litigation over the Weiss patent since it might be

considered a dominating patent under the patent laws in Eu-

rope. According to the patent experts of both parties, the fact

that Weiss might be dominating does not establish that Weiss is

relevant to the patentability of the ’912 in the United States.

23. The totality of the circumstances surrounding the appli-

cants’ involvement with the Weiss patent makes it clear that

the applicants had knowledge of the Weiss patent. There is

evidence, however, that the applicants believed the 912 patent

to be different enough from the Weiss patent so that they had

no duty to disclose Weiss to the PTO. The circumstances indi-

cate that the applicants made a “business judgment” not to

disclose the Weiss. While this may not have been the best

decision, there is no evidence that the applicants acted with

recklessness or gross negligence in making such a decision.

24. Da Gasso discloses an apparatus for processing torque

Stretch yarn. It is possible that the primary examiner of the

’912 application knew of Da Gasso as he was also the primary

examiner of a co-pending application (’724) of the inventors of

the ’912 against which Da Gasso was unsuccessfully cited.

25. The technological evidence with respect to Da Gasso was

not as sharply divided as that involving Weiss. Both the

Throwsters technical expert, Dr. Stanley Backer, and Lex

Tex's expert, Dr. Chester Dudzik, agreed that Da Gasso fails to

claim or disclose a means or method of controlling tension

across the second heating zone. The ’912 patent discloses a

tension controlling feed roll prior to the second heating zone,

the purpose of which is positively to increase or decrese tension

independent of that in the first zone. Indeed, the examiner in

the Reissue recognized this:

Certainly there should be no question as to how the Italian

patent operates and with what art area it is concerned,and

the primary difference between it and Applicant's process

is the positioning of the rolls between the twist spindle

and the second heater to enable Applicant to control and

adjust the tension in the yarn in both the crimping zone

and in the post-hearing zone separately from one another.

(Court Exhibit 2, p. 18, § 34). This characteristic is not present

in Da Gasso, since it is only possible to increase tension through

the second zone in Da Gasso. Put differently, it is impossible to

overfeed yarn through the second heater zone by Da Gasso. (T.

4805-4808). Likewise, both experts agree that the exminer had

a better reference before him in Belgium Patent 545,983

(Chavanoz) (Dudzik at 5399, Backer at 4789).

26. During the original prosecution of the 912, the Chavanoz

patent was combined with U.S. Patent 2,011,212 (Finlayson) to

formulate a rejection of certain then pending claims. On fur-

ther consideration the examiner allowed the claims over this

combination rejection. The expert testimony in this trial, con-

sistent with the examiner's position in the original application,

establishes that Da Gasso does not supply the admitted defi-

ciency in the Finlayson/Chavanoz combination. (T. 5103).

27. There is no evidence of deceptive intent with respect to

the failure to cite Da Gasso in the original application. It is

apparent that it “differs markedly” from the applicant's dis-

closure and there is at least an honest and reasonable dif-

ference of legal opinion as to the materiality of Da Gasso with

respect to the applicant's claims. (T. 5509-19). There were no

documents or other evidence establishing that the applicants

or their attorneys or Leesona actually believed that Da Gasso

disclosed controlled tension in the second heating zone, or that

they believed it was a better reference. (T. 5055). The evidence

does show, however, that they believed that the claim limita-

tions in the 912 were clearly and patentably distinguished from

Da Gasso. (T. 5057, 5154, 5517-19). |

28. During the prosecution of the original ’912 application,

the Primary Examiner declared an Interference (92038) with

an application filed by Marijon Baebler (Baebler). Stoddard

and Seem conceded that they could not prove the Count in

Interference and it was dismissed following a settlement be-

tween Stoddard and Seem and the owner of the Baebler ap-

plication. The only subject matter found in tne ’912 which is

arguably supported by the Baebler disclosure is claim 23. At

the time of the Stoddard/Seem/ Baebler settlement of the

Interference, all parties knew that if claim 23 was supported by

both applications then Stoddard and Seem were not entitled to

it. The Examiner concluded that Baebler did not support claim

23 as he allowed that claim. Accordingly, Examiner Petrakes’

finding in the reissue that there is no collateral estoppel as a

consequence of the Baebler interference is persuasive. (Court

Exhibit 2, p. 12, 4 25).

29. In contrast to today’s requirement, Stoddard and Seem

had no obligation to disclose to the PTO the written agreement

by which the Baebler interference was settled. In any event,

the settlement agreement did not have any impact on claim 23

of the ’912 as that claim would either rise or fall based upon the

respective disciosures of the ’912 and Baebler. (T. 5535-42).

30. Claim 23 of the ’912 has never been asserted by any owner

of the ’912 patent, and it is clear that by the time of the Baebler

interference in 1962 it was recognized that claim 23 of the 912

had no commercial value. (T. 5402). Taking the evidence as a

whole, it appears that the settlement of the Baebler inter-

ference was simply a commercially practical business

arrangement.

LACHES AND ESTOPPEL

31. Burlington, J. P. Stevens and Avtex Fibers have asserted

the defenses of laches and estoppel.

10a

32. The following acre quotes from Throwster Proposed Post

Trial Findings of Fact, Purge Trial, submitted June 4, 1979.

The references are to the Throwster paragraph numbers:

A. “In 1971, Lex Tex filed a number of actions for infringe-

ment of the Lex Tex patents and for breach of agreements to

pay royalties under the Lex Tex patents.” (paragraphs 5.1)

B. “Universal Textured Yarns, Inc. was a party to one of the

prior actions.” (paragraph 5.2)

C. “Burlington Industries, Inc. was a party to one of those

prior actions involving the enforceability of the Lex Tex pat-

ents.” -(paragraph 5.3)

D. Dow Badishe Co. is the successor to Universal Textured

Yarns, Inc.” (paragraph 1.7).

E. “On November 20, 1974, July 30, 1975, and May 5, 1976,

Lex Tex caused announcement to be published in the trade-

press, which said:

‘The purpose of this notice is to advise that Lex Tex Ltd.,

Inc. will «pon favorable determinations in the Florida

litigation proceed in appropriate courts throughout the

United States to obtain compensation from all those who

have made infringing uses of its rights. (Tr. 797-97A; Ex.

64/A; emphasis supplied)’” (paragraph 13.13)

F. “By these notices, Lex Tex intended to indicate to the

throwster industry that if it had a favorable determination in

the Florida litigation on the pending appeal to the Fifth Cir-

cuit, it would enforce its double-heater patents. (Tr. 797-99)”

(paragraph 13.14)

G. “Lex Tex did nothing with respect to the rebate provisions

of its agreements in the period immediately following the deci-

sion of the Court of Appeals for the Fifth Circuit; yet, on

February 24 and March 15, 1977, Lex Tex caused an announce-

ment to be published in the trade press stating--in the identical

language of the prior announcements and with the purpose of

inducing the public to link the two—that:

lla

‘A favorable determination has been made in the Fifth

Circuit litigation concerning an attack on the validity of

Lex Tex patent product claims. (Ex. 64A; Tr. 800-03)’”

(paragraph 13.15)

H. “By virtue of the 1977 announcements, Lex Tex gave the

public and the throwing industry the false impression that it

had ’a favorable determination’ in the Fifth Circuit litigation

which, as indicated by the use of similar phrasing in the 1975

and 1976 announcements, would trigger enforcement of the

patents by Lex Tex. (Tr. 800-03)” (paragraph 13.16)

33. “The Daily News Record is a trade publication for the

textile industry that appears in newspaper format, five days a

week.” Information contained therein, whether by advertising

or otherwise, is notice to the textile industry in general, and

the Throwsters, in particular. (T. 2132).

34. The Throwster industry was fully aware of the Lex Tex

position (T. 407-408) that its patents were being infringed from

an early stage of the MDL No. 82 litigation. (T. 380-381).

35. There is no testimony in the record from which any

prejudice or damage to any of:the. Throwsters accrued as a

consequence of the timing of the institution of suits against

them.

36. Lex Tex's misuse of its patents terminated May 31, 1977.

37. In or about March of 1964, an agreement was made

between Leesona Corporation and ARCT, Chavanoz, Deering

Milliken Research Corporation (DMRC), by which Leesona

agreed not to bring suit on the ’912 patent which it then owned,

against persons or companies in the United States who brought

and operated ARCT machines pursuant to a use license issued

by DMRC. (T. 2294-2296). When Lex Tex acquired the 912

patent, to its knowledge there were no ARCT machines sold in

the United States which were not licensed by DMRC (T. 2297).

Accordingly, Lex Tex's predecessor Leesona, and Lex Tex, had

not, until 1970, undertaken suit against ARCT machine users

in the United States. (T. 2296-2297).

12a

38. In or about 1970, litigation between numerous

Throwsters (including Burlington) on one side, and DMRC,

Chavanoz and ARCT on the other side, commenced in South

Carolina. Thereafter, in or about 1971, ARCT machines were

take a use license from DMRC. (T. 2297).

39. Lex Tex first became aware in or about 1972 that there

were operators of ARCT machines in the United States who

were not licensed by DMRC who might therefore be sued for

infringement of the ’912 patents.

40. The legality of the 1964 agreement between Leesona,

ARCT, et al. had been made an issue in the litigation in South

Carolina. (T. 2298).

41. Consequently, Lex Tex decided that until such time as

that litigation over the legality of that agreement was con-

cluded, it would not commence actions against ARCT machine

users in the United States who were not licensed by DMRC

because of the real prospect of becoming embroiled in the South

Carolina litigation and thus diverting its efforts from MDL No.

82. (T. 2298)

42. The decision in the South Carolina litigation came down

in July of 1977, and, upon the advice of counsel, Lex Tex shortly

thereafter commenced suits against Throwsters who were

using ARCT equipment in the United States. (T. 2299).

43. In or about 1968 or early 1969, Leesona Corporation

developed and prepared to market the 570 machine by the use

of which set yarn could be produced. (T. 5303).

44. Leesona, in offering that machine to the trade, offered

Lex Tex licenses to its Throwster purchasers covering the ,912

and ’724 patents. As many as 15 to 20 such licenses were

executed by actual and prospective customers of Leesona 570

machines. (T. 5305).

45. At about the end of 1969, suits were commenced in New

York between the Throwsters and Leesona. Thereafter it be-

13a

came apparent that there would be no further royalty pay-

ments from Throwsters, including those operating double-

heater machines under Lex Tex licenses. (T. 530t-07).

46. In or about the beginning of 1970, Lex Tex Florida was

created and the ’912 and ’724 patents previously held by Lex

Tex North Carolina were transferred to Lex Tex Florida. Lex

Tex sought to clarify its licensing posture by writing those

Throwsters who had executed licenses with it, but whose ex-

pressed intent was not to honor those licenses, by proposing a

cancellation of the license. (T. 5307-08).

47. The original Lex Tex actions were asserted in the South-

ern District of Florida against those Throwsters with whom

Lex Tex had license agreements, with the agreements forming

the basis for jurisdiction over them in Florida. Those suits were

commenced in early 1971. (T. 5308).

48. No infringements against Throwsters outside Florida

were made in early 1971 because Lex Tex, for economic rea-

sons, sought to confine its litigation over its patent rights to the

Southern District of Florida. (T. 5309). That decision was com-

municated to the Trade in 1972 and 1973 by publication in the

Trade papers. (T. 5310).

49. J. P. Stevens made no i\vestigation of validity or prospec-

tive infringement of the Lex Tex ’912 patent before purchasing

its ARCT machines in 1971. (T. 5239-40).

50. J. P. Stevens, at the time it acquired its ARCT machines

in 1971, had never seen nor reviewed the 1964 Settlement

Agreement. (T. 5240).

51. Pursuant to Throwster Exhibit 1825, an offer by Lex Tex

to J.P. Stevens, if said offer had been accepted by J.P. Stevens,

it would have resulted in a payment by J.P. Stevens to Lex Tex

of royalties under the ’912 patent. (T. 5245).

52. That agreement contemplated licensing Lex Tex patents.

The license agreement contemplated by Exhibit 1825 was to be

‘ l4a

executed by Lex Tex and J. P. Stevens with J.P. Stevens obliged

to pay royalties under the 912 patent. (T. 5246-47).

53. With respect to Throwster Exhibit 1828, a letter from

Mr. Conrad to Mr. Frimer, the offers conveyed in that letter

were withdrawn by telegram, Exhibit 1830. (T. 5249).

54. Exhibit 1824, a letter of June 23, 1971 by Mr. Conrad toJ.

P. Stevens, shows that Lex Tex was offering a license to J. P.

Stevens under the ’912 patent. (T. 5257-60).

55. J. P. Stevens never had a license from DMRC under the

Chavanoz patent. (T. 5262).

56. Beginning in 1971, Lex Tex consistently took the position

that J. P. Stevens required a license under the ’011 patent and

should pay Lex Tex under the ’912 patent for the benefit of its

customers (T. 5263). On the other hand, J. P. Stevens’ position

was that they did not need a license under the ,912 nor did their

customers who purchased yarns manufactured by J. P. Stevens

on its ARCT machines. That position was J. P. Stevens’ internal

position which was not transmitted to Lex Tex (T. 5263).

57. Lex Tex, in 1971, 1975, and 1976, consistently informed J.

P. Stevens that they needed a license for their customers under

the ’912 patent. (T. 5264).

58. Exhibit 1826 is an offer to license J. P. Stevens payment

for which, under the ’912 patent, is to be made on the basis of

yarns produced, whether sold to customers or not. (T. 5273-75).

59. At no time did Lex Tex tell anyone connected with J. P.

Stevens that J. P. Stevens was licensed under the ’912 or ’724

patent, as a consequence of the 1964 ARCT Leesona Settle-

ment Agreement. (T. 5329). Nor did J. P. Stevens tell Lex Tex

that it had a license under the 912 and ’724 patents as a result of

that 1964 Agreement. (T. 5329).

60. In mid 1971, and again in 1974, Lex Tex approached the

general counsel for J. P. Stevens concerning a settlement. (T.

5329). Lex Tex never told J. P. Stevens nor any other

Throwsters that it did not intend to pursue its rights against

ae.

l5a

infringers of the ’912 patent, as enforcing its patents and licens-

ing them was its only business. Moreover, Lex Tex was obligat-

ed under its agreement with Permatwist to enforce and license

its patents. (T. 5330).

61. Lex Tex, having had many discussions with many

Throwsters over the years, never was told by any Throwster

that it had purchased double-heater machines ignorant of Lex

Tex's patent rights. (T. 5330).

62. ARCT began to sell double-heater machines in the Unit-

ed States in 1972 without DMRC use licenses. (T. 2296).

63. Suit for infringement of the 912 product claims was

brought against Burlington on June 15, 1977.

64. Accordingly to Mr Burroughs, general counsel for Bur-

lington, the latter burlington, in 1969, Burlington was told that

it needed a Lex Tex license to operate Leesona double-heater

machines. (T. 2135).

65. No testimony was offered by Burlington that it suffered

any prejudice from any delay by Lex Tex in instituting its suit

aginst Burlington for infringement.

66. Burlington's plans to purchase double-heater machines in

1969 was not established to be known by Lex Tex at that time.

The earliest date that could be inferred from the record as to

when Lex Tex gained knowledge of Burlington's infringing

activity would be 1972, the year ARCT began to sell machines

in the United States without DMRC licenses.

67. Burlington was first informed in 1973 that Lex Tex con-

sidered Burlington an infringer. Mr. Conrad transmitted this

information to Mr. John Malley, counsel for Burlington.

68. As early as 1974, Lex Tex had caused announcements to

be published in the trade press that stated that Lex Tex intend-

ed to enforce its patents upon favorable determination of the

South Florida litigation. (Throwsters proposed post trial find-

ings of fact, purge trial, paragraph 13.13.) This constituted

notice to the entire industry, including Burlington, that in-

16a

fringers of the Lex Tex patents would eventually be sued.

Burlington thus had notice of Lex Tex's intention to enforce its

patents against it.

69. Avtex acquired certain assets of F.M.C., including a

polyester texturing yarn plant in 1976. (T. 4649).

70. Lex Tex met with F.M.C. officials in or about 1972 and

informed them, according to Mr. Gregg’s “understanding”, that

Lex Tex felt it had a patent under which F.M.C. should be

licensed in order that F.M.C.s customers would be exempt

from suit for infringement. (T. 4677-78).

71. In 1975, Lex Tex met with principals of F.M.C. and

offered a license different from the license which it had offered

in 1972. That offer was considered and rejected. (T. 4681).

72. The 1975 Lex Tex license proposai was rejected on the

“general feeling that nothing had changed since 1971”. (T.

4682).

73. Although Mr. Gregg, Chairman of the Board of Avtex

Fibers, testified at length about information concerning his

company, its acquisition of a yarn texturing facility from |

F.M.C., and various negotiations and business details related

thereto, including considerations of patent liability made by

both F.M.C. and Avtex, Mr. Gregg did not bring any Avtex files

with him to court. (T. 4695).

74. Afer a review with counsel in preparation for his testi-

mony at trial, Mr. Gregg did not find the ARCT Agreement to

which he referrred in his testimony as “insulating” Avtex from

suit by Lex Tex. (T. 4695).

75. Neither F.M.C., as the company from whom Avtex ac-

quired its yarn texturing plant and some of its equipment, nor

Avtex ever had a license from DMRC to operate ARCT equip-

ment. (T. 4697-98).

76. Mr. Gregg did not know that one of the conditions of the

1964 ARCT Agreement was that only those ARCT machine

ee en ee ere eee

17a

users having a use license from DMRC were immune from suit.

(T. 4698).

77. Neither F.M.C. nor Avtex brought ARCT equipment

from ARCT France. The written commitments and contract

was negotiated with Mr. Robert Waters, an officer of the U.S.

ARCT company, and not ARCT France. (T. 4698-99).

78. Mr. Gregg has read the Daily News Record since 1957.

He was aware, from having read the News Record, of the

existence of the Lex Tex claims and MDL 82. (T. 4699).

79. Mr. Gregg’s understanding of the license offered by Lex

Tex to F.M.C. is that it would have covered “yarn and use” of the

product of the double-heater machines (T. 4700).

80. After F.M.C. purchased and installed ARCT equipment

in 1971, notices appeared in the trade publications to that

effect. Following these notices, Lex Tex got in touch with

F.M.C. and offered a license to it concerning the yarn products

of the ARCT equipment (T. 4704).

81. Mr. Gregg read various Lex Tex ads placed in the Daily

News Record advising the trade that Lex Tex would pursue

infringement suits against infringing Throwsters following the

outcome of litigation in Florida. (T. 4706-4707).

82. Lex Tex returned to F.M.C. in 1975 before Avtex pur-

chased the F.M.C. yarn texturing plant and equipment. At no

time during Lex Tex’s negotiations with F.M.R., Avtex’s pre-

decessor owner of its ARCT equipment, did F.M.C. assert that

it had rights under the 1964 ARCT Agreement. (T. 4707, 5310).

Lex Tex did not tell anyone th.at the ARCT 1964 Agreement

offered licenses as that agreement was not drafted so as to

result in the issuance of licenses to anyone. (T. 5310-11).

83. No serious consideration to the 1975 Lex Tex proposal

was given by Mr. Gregg. (T. 4708).

84. The decision to buy ARCT equipment and open the plant

in Radford, Virginia by F.M.C. was made before Lex Tex first

proposed a license agreement to F.M.C. (T. 4708).

18a

85. Neither F.M.C. nor Avtex had any double-heater equip-

ment in Florida from 1971 to 1978. (T. 4708).

86. Mr. Gregg agreed that Lex Tex came to F.M.C. in 1972 to

discuss a yarn end use license. (T. 4716).

87. In 1975, Lex Tex directly approached F.M.C. to discuss

machine use patents as well as end use patents and left a draft

copy of a proposed license agreement with F.M.C. That ap-

proach was before F.M.C. sold its ARCT machines and plant to

Avtex. (T. 4717).

88. Shortly before F.M.C. informed the textile industry of its

proposed venture into the synthetic yarn texturing business,

Lex Tex spoke with their general counsel proposing an ar-

rangement with Lex Tex so that machines they proposed to put

in place could be operated without being subject to infringe-

ment claims under the Lex Tex patents. Their general counsel

responded that F.M.C. had not finished its machinery installa-

tion, and, therefore, the inquiry was premature. (T. 5311).

89. The first meeting between Lex Tex and F.M.C. was

before F.M.C. had its ARCT machines in place and ready to

produce set yarn through their operation. At that time, Mr.

Conrad spoke with the general counsel for F.M.C., Mr. Carroll,

about the prospect of a license. He was told by Mr. Carroll that

they were not then operating their double-heater equipment

and that Lex Tex should return when operation had com-

menced to discuss the prospect of a license. As suggested, after

operation of the machines commenced, Lex Tex renewed is

inquiry about a license but nothing came of those negotiations.

(T. 5327). The last time Lex Tex spoke with F.M.C. about

licensing under the ’912 patent was in or about 1975 (T. 5328).

Lex Tex had no discussions or negotiations with Avtex con-

cerning a license. Upon learning of the acquisition from F.M.C.

of texturing equipment it filed a suit for infringement against

Avtex. (T. 5328).

CONCLUSIONS OF LAW ON UNENFORCEABILITY

1. This Court has jurisdiction over the subject matter in this

case and has jurisdiction over each of the parties. 28 U.S.C.

§§ 1338(a), 1831 and 1332.

19a

2. The far-reaching social and economic consequences of a

patent give the public a paramount interest in seeing that

patent monopolies spring from backgrounds free from fraud or

other inequitable conduct Precision Instrument Manufactur-

ing Co. v. Automotive Maintenance Machinery Co., 324 U.S.

806, 816 (1945).

3. An applicant for a patent owes the highest degree of

candor and good faith to the patent office. Beckman Instru-

ments, Inc. v. Chemtronics, Inc., 439 F.2d 1369 (5th Cir. 1970);

Xerox Corp. v. Dennison Manufacturing Co., 322 F. Supp.

963, 968 (S.D.N.Y. 1971).

4. There is a distinction between “fraud” which invalidates a

patent and “unclean hands or inequitable conduct” which ren-

ders the patent unenforceable. The distinction is without prac-

tical significance insofar as the consequences are concerned

where the inequitable conduct occurs in connection with the

prosecution of the patent application, so that the wrong cannot

be purged while the patent remains in force. In either case, the

value of the patent is irreparably destroyed. The distinction is

significant only in regard to the proof required. Timely Prod-

ucts Corp. v. Arron, 523 F.2d 288 (2d Cir. 1975).

5. To constitute unclean hands or inequitable conduct, there

must be some element of wrongfulness, willfulness, bad faith,

recklessness or gross negligence. Xerox Corp. v. Dennison

Manufacturing Co., 322 F. Supp. 963, 968 (S.D.N.Y. 1971);

Parker v. Motorola, Inc., 524 F.2d 518, 535 (5th Cir. 1975);

Eudy v. Motor-Guide, Herschede Hall Clock, 651 F.2d 299 (5th

Cir. 1981); DeLong Corp. v. Raymond International, Inc., 622

F.2d 1135, 1145 (3d Cir. 1980); International Tel. & Tel. Corp. v.

Raychem Corp., 538 F.2d 453, 461 (Ist Cir. 1976).

The standard is not one of strict liability for innocent or even

negligent omissions or misstatements before the Patent Office.

Pfizer, Inc. v. International Rectifier Corp., 538 F.2d 180, 186

(8th Cir. 1976). To deny enforcement as a matter of law merely

because of an innocent or good faith non-disclosure would go

beyond what is necessary to protect the public against the

20a

improvident granting of a monopoly. The patent applicant has

the right to exercise good faith judgment in deciding what

matters are and are not of sufficient relevance and materiality

to require disclosure. Xerox Corp. v. Dennison Manufacturing

Co., 322 F. Supp. 963, 968 (S.D.N.Y. 1971); Parker v. Motorola,

Inc., 524 F.2d 518, 535 (5th Cir. 1975).

In Beckman Instruments, Inc. v. Chemtronics, Inc., 439

F.2d 1369 (5th Cir. 1970), the Fifth Circuit found that the

patentee deliberately withheld from the Patent Office knowl-

edge of prior art which would, if known by the Examiner, have

resulted in the denial of the patent. The patentee’s invention of

a device used in electrochemical analysis contained only the

invention of the prior art with no novel additions. When the

patentee was preparing to get his device patented, one of its

employees came across the prior art invention and wrote a

memorandum to his manager explaining that the prior art

invention was clearly within the scope of claims in the pat-

entee’s application. Unlike the situation in the case at bar

where the patent applicants believed in.good faith that their

patent differed materially from the prior art, Beckman was

notified by its employee of the great similarities in its patent

application and the prior art and, therefore, could not in good

faith state that it believed the prior art was irrelevant.

In Scott Paper Co. v. Fort Howard Paper Co., 432 F.2d 1198,

1204 (7th Cir. 1970), the Seventh Circuit upheld the district

court’s finding that the patentee was not guilty of unclean

hands. In Scott, the patentee failed to cite two prior art pat-

ents, Crane and Oldofredi. The district court held that both

Crane and Oldofredi disclosed the method and structure in the

patentee’s claims. The parties challenging enforceability ar-

gued that the failure to cite these prior art patents, both of

which were known to the patentee, constituted inequitable

conduct The Seventh Circuit stated at 1205:

Here there was no finding by the court that Scott was

guilty of deliberate misrepresentation. The finding is that

Scott was aware of Crane and Oldofredi and failed to

2la

describe them to the Patent Office. Since there is suffi-

cient evidence in the record that Scott, in good faith,

disagreed with Fort Howard and the court as to the perti-

nence of Crane and Oldofredi, we are of the view that

reversal is not required This is not a case where the non-

disclosed prior art is almost identical with the patentee’s

invention, and therefore the cases cited by Fort Howard

are inapposite.

Likewise, the patent applicants in MDL 82 believed in good

faith that the Weiss and Da Gasso patents were not pertinent.

6. Proof of inequitable conduct must be established by clear,

unequivocal and convincing evidence. Pfizer, Inc. v. Interna-

tional Rectifier Corp., 538 F.2d 180 (8th Cir. 1976).

7. Claim language is to be given its broadest reasonable

interpretation in light of the specification. Application of Ehr-

reich, 590 F.2d 902, 907 (C.C.P.A. 1979); In re Okuzawa, 537

F.2d 545, 548 (C.C.P.A. 1976); In re Royka, 490 F.2d 981

(C.C.P.R. 1974).

8. In order to understand the critical limitation “control” as

the term is used in the claims, it is necessary to refer to the

specifications. United States v. Adams, 383 U.S. 39, 49 (1966);

Motion Picture Patents Co. v. Universal Film Manufacturing

Co., 243 U.S. 502, 510 (1917).

9. The Weiss and Da Gasso patents are either not as material

as other art cited by the PTO or there is competent conflicting

opinions by reasonable experts such that the failure to cite

Weiss and Da Gasso cannot constitute intentional deception or

gross negligence.

10. While there is some evidence to indicate that the appli-

cants of the ’912 patent and their attorneys were negligent in

failing to disclose the Weiss and De Gasso patents to the Patent

Office, there is no clear and convincing evidence that they were

grossly negligent, reckless, willful, wrongful or in bad faith.

There is, therefore, no clear and convincing evidence of ineq-

uitable conduct by the applicants or their counsel.

22a

11. The failure to advise the PTO of the terms of the settle-

ment of the Baebler interference does not constitute inequita-

ble conduct. There was no obligation to make the PTO aware of

the terms of that settlement. The settlement and the dismissal

of the interference had no collateral estoppel effect.

12. Claims 24, 26, 27 and 31 of the ’912 patent are enforceable

by Lex Tex.

CONCLUSIONS OF LAW ON ESTOPPEL AND LACHES

13. The defense of laches may be invoked where the plaintiff

has unreasonably and inexcusabley delayed in prosecuting its

rights and where that delay has resulted in material prejudice

to the defendant. Studiengesellschaft Kohle v. Eastman Kodak

Co., 616 F.2d 1315, 1325 (5th Cir. 1980), cert. denied, 449 U.S.

1014.

14. Estoppel arises only when one has so acted as to mislead

another, and the one thus misled has relied upon the action of

the inducing party to his prejudice. Studiengesellschaft Kohle

v. Eastman Kodak Co., 616 F.2d at 1325.

15. J. P. Stevens has failed to prove that Lex Tex delayed in

bringing suit agianst it for infringement in connection with

ARCT machine use which was inexcusable and unreasonable

and that J. P. Stevens was prejudiced thereby.

16. J. P. Stevens has failed to prove that Lex Tex should be

estopped from asserting its right to recover from J. P. Stevens

for infringement. In addition to there being an absence of

evidence that J. P. Stevens was materially prejudiced by any

delay by Lex Tex or that such delay was unreasonable and

inexcusable, Lex Tex’s conduct was not such as to mislead J. P.

Stevens into justifiably relying on it to its detriment.

17. Burlington has failed to prove that Lex Tex delayed in

bringing suit against it for infringement in connection with

ARCT machine use which was inexcusable and unreasonable

and that Burlington was prejudiced thereby.

234

18. Burlington has failed to prove that Lex Tex should be

estopped from asserting its right to recover from Burlington

for infringement. In addition to there being an absence of

evidence that Burlington was materially prejudiced by any

delay by Lex Tex or that such delay was unreasonable and

inexcusable, Lex Tex’s conduct was not such as to mislead

Burlington into justifiably relying on it to its detriment.

19. Avtex has failed to prove that Lex Tex delayed in bringing

suit against it for infringement in connection with ARCT ma-

chine use which was inexcusable and unreasonable and that

Avtex was prejudiced thereby.

20. Avtex has failed to prove that Lex Tex should be estopped

from asserting its right to recover from Avtex for infringe-

ment. In addition to there being an absence of evidence that

Avtex was materially prejudiced by any deiay by Lex Tex or

that such delay was unreasonable and inexcusable, Lex Tex’s

conduct was not such as to mislead Avtex into justifiably rely-

ing on it to its detriment

DONE AND ORDERED at Miami, Florida, this 28 day of

March, 1983.

UNITED STATES DISTRICT

J UDGE

ec: Blackwell, Walker, Gray, et al. David Kavanaugh, Esq.

Fowler, White, et al.

Mershon, Sawyer, et al.

Smathers & Thompson

24a

APPENDIX B

UNITED STATES COURT OF APPEALS FOR THE

FEDERAL CIRCUIT

Appeal Nos. 84-754 through 84-761

J. P. STEVENS & Co., INC.,

BADISCHE CORPORATION, AND

BURLINGTON INDUSTRIES, INC.

Appellants/Cross-Appellees,

Vv.

Lex Tex Ltp., INC.,

Appellee/Cross-Appellant.

— ——

DECIDED: November 9, 1984

Before MARKEY, Chief Judge, DAVIS, MILLER, SMITH,

and NIES, Circuit Judges.

MARKEY, Chief Judge.

Appeal from a final judgment of the District Court for the

Southern District of Florida holding infringed, not invalid, and

not unenforceable product claims 24, 26-27, and 31 of U.S.

Patent No. 3,091,912 (‘912 patent), issued on June 4, 1963 to

Messrs. Stoddard and Seem, ultimately assigned to Lex Tex

Ltd., Inc. (Lex Tex), and now expired. Burlington, Stevens,

and Badische (Burlington) appeal those parts of the

holding that the claims were not invalid under 35 U.S.C. §§ 102

and 103, that Lex Tex purged itself of misuse as of May 31,

1977, and that the claims were not unenforceable due to fraud

25a

on the Patent and Trademark Office (PTO). Lex Tex cross-

appeals, arguing that its misuse purge occurred earlie than

May 31, 1977. We reverse the portion of the final judgment

holding that the claims in suit were not unenforceable.

BACKGROUND

A. History of the Litigation

This appeal evolved from litigation starting in 1969, involv-

ing at least six patents and fifty accused infringers in the yarn

treating industry. In 1974, the district court for the Southern

District of Florida, in which the cases had been consolidated,

granted summary judgment against Lex Tex on the basis of its

misuse of the 912 patent and other patents in licensing. 398 F.

Supp. 31, 182 USPQ 523, mod ., 541 F.2d 1127, 192 USPQ 241

(5th Cir. 1976), cert. denied, 433 U.S. 910 (1977).

Lex Tex sued Burlington, alleging purge of misuse and in-

fringement after the purge. The cases were transferred to the

Southern District of Florida, where separate trials were held in

this order: (1) without a jury, on the purge issue, resulting in a

judgment that purge was achieved as of May 31, 1977; (2) witha

jury, on the validity issue under §§ 102 and 103, resulting in a

hung jury; (3) without a jury, on the equitable defenses of

“fraud on the PTO”, laches and estoppel, resulting in a judg-

ment for Lex Tex; (4) with a jury, on the validity issue under 35

U.S.C. §§ 102 and 103, resulting in a judgment for Lex Tex;

and (5) with a jury, on damages, resulting in an award to Lex

Tex of nearly $8.8 million, plus interest.

The judgment on the equitable defenses was accompanied by

written findings and conclusions, in which the district court

determined that Stoddard and Seem (the ’912 applicants) knew

of and did not disclose during prosecution (1957 through 1963)

British Patent No. 710,082 to Weiss (Weiss) and Italian Patent

No. 531,481 to DaGasso (DaGasso). The court further deter-

mined, however, that there was no clear and convincing evi-

dence of materiality or intent and, hence, no fraud on the PTO.'

'The district court also rejected a defense of fraud based on failure to

disclose an agreement settling an interference between the owner of a

Baebler application and the "912 applicants. Because of our disposition we

need not and do not address the rejection of that defense.

B. The ’912 Patent

The ’912 patent relates to reprocessing “torque stretch

yarns”, produced by twisting a multi-filament yarn, heat set-

ting the twist, and reverse twisting. Production of torque

stretch yarns was the subject of three basic “single heatter”

patents involved in earlier phases of the litigation.

Torque stretch yarns possess certain properties that the

processes claimed in the 912 patent were designed to improve

by simultaneously applying heat and tension to the yarn in

whatever correlation is required to produce desired effects.

Different correlations produce different effects. Process claim

1 reads:

1. The method of processing multifilament “torque

stretch yarn” whose stretch characteristics have been set

at a given temperature comprising the steps of continu-

ously advancing the yarn, controlling the degree of ten-

sion in said travelling yarn in at least one portion of its

continuous travel, said tension being below the breaking

tension of the structural elements of the yarn, heating

said yarn during said portion of its continuous travel to a

temperature not subst~»‘ially greater than said given

temperature and correlating the controlled tension and

the heat imparted to said yarn with the tensile force

necessary to extend the [yarn to the limit of its stretch

characteristics and the tensile force necessary to extend

the yarn to the yield point of the structural elements of the

yarn to thereby control the physical characteristics in the

reprocessed yarn.

Other process claims specify the correlating criteria, add the

step of controlling tension in a second portion of the yarn'’s

travel, or add a process of making torque stretch yarn from

multifilament yarn before performing the process set forth in

claim 1. The process claims were originally in suit but were

withdrawn after the Board opinion in a PTO reissue proceed-

ing, discussed infra , determined that most of them do not

avoid the prior art.

27a

The yarns produced by the processes of the ’912 patent are

asserted to have uniform characteristics throughout their

length. Moreover, the tendency of torque stretch yarn ran-

domly to “pigtail”, i.e., the tendency of groups of opposed

spiralled formations to twist about themselves, is described as

lessened. Product claims 24, 26, 27, and 31, the only claims in

suit, cover the yarn produced by the foregoing processes,

though not couched in product by process terminology. Claim

24 reads:

24. A processed “torque stretch yarn” characterized by

uniform reorientation of the structural elements of the

yarn components to thereby exhibit substantial unifor-

mity throughout its length in its latent and manifest phys-

ical characteristics of shape, luster, cross-sectional area,

texture, dimensional stability, torque, resilience, residual

shrinkage, stretch, recovery from stretch, and elasticity,

said yarn having substantially balanced torque and mod-

erate bulk and a plurality of individual filaments manifest-

ing a plurality of partially spiralled formations of opposed

direction which remain separate from one another with-

out tending to twist upon themselves or pigtail when

relaxed, said formations being yarn-set.

Claim 26 is identical to claim 24 except that the bulk is “high”

instead of “moderate” and the filaments “infrequently tend to

. pigtail when relaxed”. Claim 27 is identical to claim 24

except that the bulk is “high” Claim 31 reads:

31. A reprocessed torque stretch yarn having in at least

a portion of its length a filament have substantially reg-

ular opposed partially spiralled formation, the spirals of

said filament being less than one convolution.

C. Weiss and DaGasso Patents

The Weiss patent teaches that undesirable characteristics of

stretch yarn made by a prior twist-heat set-untwist batch

method can be lessened by stretching the yarn from 10% to

70% and steaming it in the stretched state for up to 30 minutes.

28a

The Weiss patent discloses a batch process, as opposed to the

continuous process of the ’912 patent. The Weiss patent had

counterparts in a number of foreign countries, including the

United States (U.S. Patent No. 2,765,505, issued on October

16, 1956).

DaGasso teaches subjecting yarn made by a continuous

twist-heat set-untwist method to a second continuous process

involving heat treatment followed by a drawing action. The

parties agree and the district court found that during heat

treatment the yarn is under positive tension.

D. Prosecution History of the 912 Patent

The application that resulted in the 912 patent (’912 applica-

tion) was filed on April 19, 1957, with process claims 1-23,

product claims 24-29, and apparatus claims 30-32, to which a

fourth apparatus claim 33 was added by amendment before the

examiner's first Office Action. Pursuant to a restriction re-

quirement in the first Office Action, apparatus claims 30-33

became claims 1-4 of Continuation-In-Part (CIP) application

682,724, filed September 9, 1957 and issued on February 19,

1963, as U.S. Patent No. 3,077,724 (724 patent). The specifica-

tion of application 682,724 (’724 application) is essentially iden-

tical to that of the ’912 application.

In the second Office Action on the ’912 application, claims

1-23 and 25-29 were indicated as allowable. Only product claim

24 (subsequently issued) was rejected as unpatentable, on U.S.

Patent No. 2,411,132 to Hawthorne. Subsequent office actions

involved rejections of added product claim 37 (subsequently

issued as claim 31) on U.S. Patent No. 2,564,245 to Billion and,

later, on U.S. Patent No. 2,909,028 to Comer et al., and of

added product claim 35 (subsequently issued claim 30) on U.S.

Patent No. 2,211,211 to Finlayson in view of Belgian Patent No.

445,983 to Chavanoz.

E. Reissue Proceeding

After trial of the purge issue, but before the first trial on the

validity issue, the district court issued an order: requiring Lex

oF ee ill ‘ee te Oe On Mes Sa a)

29a

Tex to file application for reissue of the ’912 patent in the PTO;

permitting Lex Tex to modify the reissue oath to preserve its

position in the litigation; instructing the PTO “to use the expe-

dited new reissue procedure”; and permitting defendants to

participate in the PTO proceedings.”

The district court later: ordered the parties not to raise at

trial any patentability issue which could have been but was not

presented in the reissue proceeding; reiterated its position that

the PTO was to serve essentially as a Special Master on valid-

ity; and stated that the examiner’s Report was to be treated in

the trial of the validity issue as prima facie evidence of the facts

it contained. The court said the reissue result was not needed

for any conclusion on fraud because “the fraud or misrepresen-

tation issue is a legal not technical one, and is equally within the

expertise of the Court”.

The reissue examiner rejected all but seven claims in view of

Weiss or DaGasso. Product claims 24-28 and 31 were rejected

under 35 Y/.S.C. § 103 on either Weiss or DaGasso.

On appeal to the Board, claims 2, 9-14, 16, 24-29 and 31 were

considered to avoid Weiss and DaGasso, while claims 1, 3-8, 15,

17-23, and 30 were viewed as not avoiding the prior art.’

ISSUE

Whether the claims in suit are unenforceable because of

inequitable conduct before the PTO.‘

*The order was issued during the period of the “Dann Amendments”

(March 1977 through May 1982) during which patentees could seek “no-

defect” reissues, and have their claims considered in light of new prior art

without amending the claims or specification and without including in the

reissue oath a statement of belief, otherwise required by 35 U.S.C. § 251,

that the original patent was “wholly or partly inoperative or invalid”. Though

the reissue application would be rejected for failure to comply with § 251, the

record of pr.secution would indicate the PTO's evaluation of the prior art and

thereby assist a district court.

*Burlington says “events prevented” its submission of the fraud issue

resumed before the PTO reached the fraud issue.

‘In view of our disposition, we need not and do not address the patent

validity or purge of misuse issues.

30a

OPINION

A. “Inequitable Conduct”

“Common law fraud” requires (1) misrepresentation of a

material fact, (2) intent to deceive or a state of mind so reckless

respecting consequences as to be the equivalent of intent (sci-

enter), (3) justifiable reliance on the misrepresentation by the

party deceived, inducing him to act thereon, and (4) injury to

the party deceived, resulting from reliance on the misrepresen-

tation. Norton v. Curtiss, 433 F.2d 779, 793, 167 USPQ 532, 543

(CCPA 1970).§

Conduct before the PTO that may render a patent unenfor-

ceable is broader than “common law fraud”. Norton v. Curtiss,

433 F.2d at 793, 167 USPQ at 543-44. It includes failure to

disclose material information, or submission of false material

information, with an intent to mislead. Because the “fraud”

label can be confused with other forms of conduct, this opinion

avoids that label and uses “inequitable conduct” as a more

accurate description of the proscribed activity, it being under-

stood that the term encompasses affirmative acts of commis-

sion, ¢.g., submission of false information, as well as omission,

e.g., failure to disclosure material information.

“Inequitable conduct” requires proof by clear and convincing

evidence of a threshold degree of materiality of the non-

disclosed or false information. It has been indicated that the

threshold can be established by any of four tests: (1) objective

“but for”; (2) subjective “but for”; (3) “but it may have been”;

and (4) PTO Rule 1.56(a), i.e., whether there is a substantial

likelihood that a reasonable examiner would have considered

the omitted :wference or false information important in decid-

ing whether to allow the application to issue as a patent.

American Hoist, 725 F.2d at 1362, 220 USPQ at 772-73. The

5In American Hoist & Derrick Co. v. Sowa & Sons, 725 F.2d 1350, 1367,

220 USPQ 763, 776 (Fed. Cir.), cert. denied, 53 U.S.L.W. 3225 (1984), this

court stated that Norton erroneously referred to “technical” instead of com-

mon law fraud, and vowed not to use “technical”.

3la

PTO standard is the appropriate starting point because it is the

broadest and because it most closely aligns with how one ought

to conduct business with the PTO. American Hoist, 725 F.2d at

1363, 220 USPQ at 773. It served as the focus of inquiry in

Hycor Corp. v. The Schleuter Co., 740 F.2d 1529, 1539, 222

USPQ 553, 560 (Fed. Cir. 1984), and in Driscoll v. Cebalo, 731

F.2d 878, 884, 221 USPQ 745, 750 (Fed. Cir. 1984). Under the

standard, a reference that would have been merely cumulative

is not material. Kimberly-Clark Corp. v. Johnson Johnson,

No. 83-1066, sl. op. at 35-38 (Fed. Cir. Oct. 9, 1984).

“Inequitable conduct” also requires proof of a threshold in-

tent. That intent need not be proven with direct evidence.

Hycor, 740 F.2d at 1540, 222 USPQ at 561. It may be proven by

showing acts the natural consequences of which are presum-

ably intended by the actor. American Hoist, 725 F.2d at 1363,

220 USPQ at 773; Kansas Jack, Inc. v. Kuhn, 719 F.2d 1144,

1151, 219 USPQ 857, 862 (Fed. Cir. 1983). Proof of 84-754/761

deliberate scheming is not needed; gross negligence is suffi-

cient. Hycor, 740 F.2d at 1540, 222 USPQ at 561. Gross negli-

gence is present when the actor, judged as a reasonable person

in his position, should have known of the materiality of a with-

held reference. Driscoll v. Cebalo, 731 F.2d at 885, 221 USPQ

at 751; Kansas Jack, Inc. v. Kuhn, 719 F.2d at 1152, 219 USPQ

at, 862. On the other hand, simple negligence, oversight, or an

erroneous judgment made in good faith, is insufficient.

Orthopedic Equip. Co. v. All Orthopedic Appliances, 707 F.2d

1376, 1383, 217 USPQ 1281, 1286 (Fed. Cir. 1983).

Once the thresholds of materiality and intent are estab-

lished, the court must balance them and determine as a matter

of law w’i:ether the scales tilt to a conclusion that inequitable

conduct occurred. American Hoist, 725 F.2d at 1364, 220

USPQ at 774. If the court reaches that conclusion, it must hold

that the patent claims at issue are unenforceable.

Whether the holding should be one of invalidity or unenfor-

ceability has had no practical significance in cases thus far

presented to this court and has not therefore been addressed.

82a ’

This court has accepted the terminology employed by the dis-

trict court. Compare, Connell v. Sears, Roebuck & Co., 722

F.2d 1542, 220 USPQ 193 (Fed. Cir. 1983) (upholding district

court determination that the patent was not unenforceable for

fraud)* with Rohm and Haas Co. v. Crystal Chemical Co., 722

F.2d 1556, 220 USPQ 289 (Fed. Cir. 1983), cert. denied, 53

U.S.L. W. 3225 (1984) (reversing determination that the patent

was not invalid for fraud).

The Supreme Court has discussed inequitable conduct, as a

defense to a claim of patent infringement, in terms of enfor-

ceability, see, e.g., Precision Instrument Manufacturing Co. v.

Automotive Maintenance Machinery Co., 324 U.S. 806,

814-16 (1945). In Walker Processing Equip., Inc. v. Food Mach.

& Chem. Corp., 382 U.S. 172, 176 (1965), in addressing a claim

for damages under § 4 of the Clayton Act based, inter alia, on

alleged willfully fraudulent procurement of a patent, the Court

spoke of “invalidity”. Some courts have extrapolated from

Walker Processing two categories of defenses: (1) “fraud”, ren-

dering the patent invalid and (2) “other inequitable conduct”,

rendering the patent unenforceable. See, e.g. , Timely Prod-

ucts Corp. v. Arron, 523 F.2d 288, 297, 187 USPQ 257, 264 (2d

Cir. 1975); In re Multidistrict Litigation Involving Frost Pat-

ent, 398 F. Supp. 1353, 1367-68, 185 USPQ 729, 740 (D. Del.

1975), affd in part, 540 F.2d 601, 191 USPQ 241 (8rd Cir.

1976).”

Focusing on the effect of inequitable conduct as a defense, we

conclude that it results in unenforceability. The Patent Act of

*Connell added, in footnote 7, that, fraud on the PTO “may result” in a

holding of nonenforceability equivalent to invalidity. In Connell, the ineq-

uitable conduct—if it had been proven—would have been “conduct incurable

with respect to the claims as presently drawn”.

‘Our discussion of the criteria for unenforceability does not encompass the

test for a Walker Process type of claim.

In Timely Products, it was said that claims can be unenforceable due to

“unclean hands” without satisfaction of the materiality requirement, and that

claims can be invalidated due to fraud when the materiality requirement is

satisfied. That categorization is inconsistent with this court's view that mate-

riality is a necessary ingredient of any inequitable conduct.

SOAS DATS Se een

33a

1952 states in 35 U.S.C. § 282 the defenses to a patent infringe-

ment suit:

(1) Noninfringement, absence of liability for infringe-

ment, or unenforceability.

(2) Invalidity of the patent or any claim in suit “on any

ground specified in part II of this title as a condition for

patentability” [7.e., “novelty and loss of right” under § 102

and “non-obvious subject matter” under § 103].

(3) Invalidity under sections 112 or 251 of this title.

(4) Any fact or other act made a defense by this title.

Paragraph (1) includes “equitable defenses such as laches,

estoppel and unclean hands”. P. J. Federico, “Commentary On

The New Act”. 35 U.S.C.A. at 55. Because at the time the

Patent Act was enacted Supreme Court cases had treated

inequitable conduct as an “unclean hands” type defense, see,

e.g., Precision Insirument, cf., Driscoll v. Cebalo, 731 F.2d at

884, 221 USPQ at 750-51, the defense fits best in the “unenfor-

ceability” phrase of paragraph (1). That approach accords, also,

with the specification of particular bases for invalidity in para-

graphs (2) and (3) in § 282.

The CCPA decision in Norton v. Curtiss, 433 F.2d at 793, 167

USPQ at 543 supports the view that inequitable conduct re-

sults in unenforceability:

In suits for patent infringement, unenforceability, as well

as noninfringement or invalidity under the patent laws, is

a statutory defense. See 35 U.S.C. § 282(1). We have

noticed that unenforceability due to fraudulent procure-

ment is a rather common defense. In such circumstances,

we find that the courts are generally applying equitable

principles in evaluating the charges of misconduct alleged

to be fraudulent. Thus, in suits involving patents, today,

the concept of “fraud” on the Patent Office (at least when a

patentee’s conduct pertaining to the relative merits of his

invention is concerned) encompasses not only that which

34a

we have termed earlier “technical” [i.e., common law]

fraud but also includes a wider range of “inequitable”

conduct found to justify holding a patent unenforceable.

Accord, American Optical Corp. v. United States, 179 USPQ

682, 684 (Ct. Cl. Tr. Div. 1978).

Once a court concludes that inequitable conduct occurred, all

the claims—not just the particular claims to which the ineq-

uitable conduct is directly connected—are unenforceable. See

generally, cases collected in 4 Chisum, PATENTS, 4 19.03(6]

at 19-85 n.10 (1984). Inequitable conduct “goes to the patent

right as a whole, independently of particular claims’. Jn re

Clark, 522 F.2d 623, 626, 187 USPQ 209, 212 (CCPA 1975). As

siated in Gemveto Jewelry Co. v. Lambert Bros., Inc., 542 F.

Supp. 933, 943, 216 USPQ 976, 984 (S.D.N.Y. 1982):

The gravamen of the fraud defense is that the patentee has

failed to discharge his duty of dealing with the examiner in

a manner free from the taint of fraud or other inequitable

conduct’. If such conduct is established in connection with

the prosecution of a patent, the fact that the lack of candor

did not directly affect all the claims in the patent has

never been the governing principle. It is the inequitable

conduct that generates the unenforceability of the patent

and we cannot think of any cases where a patentee par-

tially escaped the consequences of his wrongful acts by

arguing that he only committed acts of omission or com-

mission with respect to a limited number of claims. It is an

all nothing proposition. [Emphasis in original. }*

If affected claims were considered invalid, rather than unen-

forceable, the entire patent would nonetheless be affected.

Section 288 of Title 35 states:

Whenever, without deceptive intention, a claim of a patent

is invalid, an action may be maintained for the infringe-

5In In re Multidistrict Litigation Involving Frost Patent, 540 F.2d 601, 611,

191 USPQ 241, 249 (8rd. Cir. 19/6), some claims were upheld despite non-

disclosure with respect to others. That case is not precedent in this court.

35a

ment of a claim of the patent which may be valid. [Empha-

sis added. ]

That provision was intended to eliminate the “common law rule

that if a patent is invalid in part it is completely invalid”.

Federico, supra, 35 U.S.C.A. at 48. The “without deceptive

intention” phrase in {| 288 reveals that the common law rule is

not eliminated “when deception or fraud is involved”. Jd. See,

Chromalloy American Corp. v. Alloy Surface Co., Inc., 339 F.

Supp. 859, 875, 173 USPQ 295, 306 (D. Del. 1972) (“§ 288 by its

express terms rules out infringement actions to enforce a pat-

ent in which any one of its claims is invalid by reason of fraud or

deception”). Accord, Kearney Trecker Corp. v. Giddings &

Lewis, Inc., 452 F.2d 579, 596, 171 USPQ 650, 664 (7th Cir.

1971), cert. denied. 405 U.S. 1066 (1972); Reynolds Metal Co. v.

Continental Group, Inc., 525 F. Supp. 950, 971, 210 USPQ 911,

929 (N.D. Ill. 1981).

In this case, our analysis focuses on the process claims. We

conclude that inequitable conduct occurred with respect to

those claims and that the product claims in suit are therefore

unenforceable.

B. Standard of Review

Materiality and intent are factual issues subject to the clear-

ly erroneous standard of review. See, e.g. Hycor, 740 F.2d at

1539-40, 222 USPQ at 557, American Hoist, 725 F.2d at 1361,

220 USPQ at 772. Thus, this court must affirm findings on

materiality and intent unless it is left with a definite and firm

conviction that error has occurred. See, e.g., Raytheon Co. v.

Roper Corp., 724 F.2d 951, 956, 220 USPQ 592, 596 (Fed. Cir.),

cert. denied, 58 U.S.L.W. 3225 (1984). If the threshold of

materiality and intent is crossed, we must determine, as a

matter of law, whether inequitable conduct occurred. Amer-

ican Hoist, 725 F.2d at 1364, 220 USPQ at 774.

C. Materiality of Weiss and DaGasso

The district court, essentially ignoring the PTO reissue pro-

ceeding, found that “[tJhe Weiss and DaGasso patents are

36a

either not as material as other art cited by the PTO or there is

[sic] competent conflicting opinions by reasonable experts such

that the failure to cite Weiss and DaGasso cannot constitute

intentional deception or gross negligence. “It found that tne

’912 invention differed from those of Weiss and DaGasso, and

stated that “[tJhis difference indicates that the inventions in-

volved are signi‘icantly different, and the claim language that

the patentees have been consistently relying on to distinguish

their invention over Weiss and DaGasso has some genuine

technological base.”

Error resulted from a failure to give primary consideration

to events involved in the PTO reissue proceeding. As stated

above, the starting point for determining materiality is the

PTO standard, i.e., a substantial likeiihood thatya reasonable

examiner would have considered the nondisclosed inforraation

important in deciding whether to allow the application to issue

as a patent. Consequently, the result of a PTO proceeding that

assesses patentability in light of information not originally

disclosed is of strong probative value in determining whether

the nondisclosed information would have been miterial.

The rejections of the process claims in reliance on Weiss and

DaGasso in the reissue proceeding indicate that those refer-

ences were clearly important to the PTO in deciding that most

of the process claims were unpatentable. Those references

would have been equally important in the original prosecution

of the 912 application. That importance, alone, establishes the

materiality of those references—as long as the rejections were

themselves reasonable. The latter condition, which is neces-

sary to a finding under the PTO standard of materiality that a

“reasonable examiner” would have considered the references

important, is satisfied here. The process claims include the key

step of subjecting a torque stretch yarn to a selected tension

during heat treatment. That step is taught by Weiss and

DaGasso, rendering them more material, or “important” under

the PTO standard, than any of the references cited in the

original prosecution or by the district court. It was clearly

reasonable, therefore, for the examiner to make, and the

37a

Board for the most part to sustain, rejections of the process

claims on Weiss and DaGasso.

The district court appears to have been persuaded by Lex

Tex’ argument that the process claimed in the ’912 patent

differed significantly from the processes of Weiss and DaGasso.

Its process, says Lex Tex, involves “controlling” the tension by

positively driven feed rolls whereby the tension can be in-

creased or decreased. Though Weiss and DaGasso involve

means to increase tension, says Lex Tex, they do not include

feed rells that can increase or decrease it, and the invention

described in the ’912 specification therefore differs from that

described in the references. Lex Tex argues that claims are

interpreted in light of the specification and that the “control”

language of the claims must be therefore limited to means that

can increase or decrease tension, 7.e., positively driven feed

rolls.

_ We disagree. Claims should be construed in light of the

specification, see e.g., Fromson v. Advance Offset Plate, Inc.,

720 F.27 1565, 1569, 219 USPQ 1137, 1140 (Fed. Cir. 1983), but

that does not mean that claims incorporate all disclosures in the

specification. Jd. at 1570, 219 USPQ at 1141. Moreover, nothing

in the ’912 specification requires that the process claims be

limited to control means that can either increase or decrease

tension (such as positively driven feed rolls). The specification

discloses six general embodiments of the process invention,

two that involve reducing tension and four that involve increas-

ing tension after the torque stretch yarn is produced. The

“controlling” limitation of the process claims reads on selecting

a tension and applying heat—whether the tension be high or

low. It does not require, whether or not it is read in light of the

specification, that the controlling mean be capable of selec-

tively accomplishing either an increase or decrease in tension.

Indeed, the specification describes an option without feed rolls

for simultaneous application of heat and tension.

The district court, in finding Weiss less relevant than Billion,

noted the continuous nature of the ’912 process in comparison

38a

with Weiss’ batch process. That Weiss involved a batch process

does not require, however, a finding that Weiss was not mate-

rial, or that it was less material than Billion. The difference

between continuous and batch processes is merely one dif-

ference to consider in determining whether the claimed inven-

tion would have been nonobvious. That difference does not

The district court also noted there was evidence that

Finlayson, together with Chavanoz, made a better reference

than Weiss or DaGasso, and that Chavanoz is a better reference

than DaGasso. Noting the existence of such evidence does not

provide a finding subject to review. Moreover, Finlayson does

not teach the key step of simultaneous tension and heat taught

by Weiss, and Chavanoz refers to “minimum” tension and in a

sens teaches away from the 912 invention.’

mary examiner of the '912 patent: (1) knew of Weiss because he

was also the primary examiner of the United States counter-

part to Weiss and conducted prior art searches in classes that

included Weiss; and (2) knew of DaGasso because he was also

the primary examiner of the "724 application, in which DaGasso

was cited. If the primary examiner actually knew about the

Weiss and DaGasso references when examining the '912 ap-

plication, that knowledge might preclude a finding of mate-

riality. Cf, Environmental Designs v. Union Oil Co. of Calif.,

713 F.2d 693, 698, 218 USPQ 865, 870 (Fed. Cir. 1983), cert.

denied, 104 S.Ct. 709 (1984) (failure to submit a page from

textbook not fraud because it was already known and of record

before examiner); Orthopedic EquipmentCo. v. All Orthopedic

Appliances, 707 F.2d 1376, 1283, 217 USPQ 1281, 1286 (Fed.

Cir. 1983) (nondisclosure not material because the examiner

independently ascertained the existence of the undisclosed

prior art). However, the district court did not find actual

*During the reissue proceeding, the Chavanoz reference was eliminated by

a PTO Rule 131 affidavit.

39a

knowledge by the primary examiner—it merely noted pos-

sibilities and, where inequitable conduct is at issue, mere

are insufficient. As stated in Driscoll v. Cebalo,

731 F.2d at 885, 221 USPQ at 751: “It cannot be presumed,

where fraud or other egregious conduct is alleged, that the

PTO considered prior art of particular relevance if it was not

cited”. There is no evidence, and Lex Tex does not argue on

appeal, that the primary examiner actually recalled the critical

aspects of the U.S. Weiss or DaGasso patents. Nor is there

evidence that the examiner principally responsible for examin-

ing the application, as opposed to the primary examiner, had

knowledge of the references.”

D. Intent

that the applicants or their attorney, believing Weiss to be

relevant, intentionally withheld it from the PTO or that they

acted with recklessness or gross negligence”, and it found “no

evidence of deceptive intent with respect to the failure to cite

DaGasso in the original application”. In the latter regard, said

the district court, “[tJhe evidence does show . . . that [appli-

cants] believed that the claim limitations in the '912 were

clearly and patentably distinguished from DaGasso”.

Those findings must be determined to have been clearly

erroneous. As stated above, threshold intent is established

where an actor in an applicant's position would have reasonably

known that the reference was material, ¢.g., that the reference

would have been important to a reasonable examiner in decid-

“Nor did appellee show that the examiner primarily responsible for exam-

ining "912 was primarily responsible for examining the U.S. Weiss and "724

applications. Compare, Kimberly-Clark Corp. v. Johnson and Johnson, No.

83-1U66, sl. op. at 37-40 (Fed. Cir. Oct. 9, 1984), where the court concluded

“no fraud” because, inter alia, the examiner of the application had been the

examiner of the reference. That, however, was only one of many facts enab-

ling the court to find that the examiner actually knew about the copending

reference, that the applicant knew the examiner knew about the reference

and, hence, that there was no materiality or intent. Under the facts of this

case, we can make no similar determination.

40a

ing whether to allow the claims. Here, where none of the prior

art cited during prosecution taught a key element of the claim-

ed process invention, and where both Weiss and DaGasso

taught that key element, the applicants for the 912 patent

should have known that those references would be important to

the PTO, especially in light of certain undisputed facts: (1)

claim 4 of the "724 application was rejected on DaGasso; (2)

licenses were taken under Weiss and foreign counterparts to

Weiss; and (3) corresponding foreign applications were re-

jected on Weiss.

1. Rejection of claim 4 of the ’724 application

Original claim 4 of the 724 application and claim 30 of the ’912

patent are similar. Each require treatment of torque stretch

yarn with simultaneous heat and tension. Claim 4 reads (the

underlined matter was added and the bracketed matter deleted

by amendment):

Apparatus for processing textile yarns comprising means

for continuously advancing said yarn from a source of

supply, means for continuously collecting said advancing

yarn, means to heat and false twist said advancing yarn in

one portion of its continuous travel, adjustable means to

apply tension to the advancing yarn in said one portion or

its travel, and means to regulate the heater means in

correlation with the applied tension to produce “torque

stretch yarn”, [and] means intermediate said second and

third mentioned means to uniformly heat said continu-

ously advancing “torque stretch yarn” at a [controlled]

selected tension in a subsequent portion of its continuous

travel, and adjusting means for regulating both the last-

mentioned heating means and the selected tension to

control the heat and tension in accordance with the

characteristics of the yarn.

Issued claim 30 of the 912 patent reads (the underlined

matter was added by amendment):

A method of processing yarn comprising the steps of

unwinding said yarn from a supply package, continuously

4la

processing said yarn to form ’torque stretch yarn’, there-

after continuously passing said yarn through at least one

tensioning apparatus, continuously heating said vee

while under the control of said tensioning apparatus, then

continuously passing said torque stretch yarn through a

second tensioning apparatus, and continuously winding

said processed yarn into a takeup package.

Claim 4 of the ’724 application (in partially amended form)

was rejected on October 13, 1959, on DaGasso in view of U.S.

Patent No. 3,869,312 to Van Dijk. Concerning the rejection,

applicant Seem stated in internal correspondence that

DaGasso “does disclose our can-can [double heater] type of

apparatus to continuously produce and post treat torque

stretch yarn”. Though applicants further amended the claim in

an effort to avoid the prior art, the claim was again rejected, on

November 7, 1960, on the same references. The claim was then

cancelled in favor of a new claim 5, which was subsequently

amended and issued.

Fully aware of DaGasso and its materiality in relation to the

application that resulted in the "724 patent, applicants should

have known of its materiality in relation to the ’912 application.

Applicants nonetheless elected not to disclose DaGasso to the

examiner of the latter application.

Indeed, applicants argued that claims 35 and 36 of the ’912

application were patentable over a single heater patent of their

own because the 912 invention contemplates the additional

step of heating and tensioning false twist yarn. That argument

implies that the prior art does not teach a heating/tensioning

step, yet applicants knew that DaGasso did teach that very

step. Applicants also urged, in attempting to distinguish a

rejection on Finlayson in view of Chavanoz, that those patents

do not teach the application of heat and two degrees of tension.

But applicants knew that that teaching is also present in

DaGasso.

2. Licensing the British Weiss Patent

In March, 1957, Universal Winding Company, later Leesona

Corporation (Universal), the then owner of the ’912 application,

42a

introduced a machine for reprocessing torque stretch yarn.

Heberlein, the owner of the Weiss patent, informed Universal

that sale of the machine would be a contributory infringement

of the Weiss process claims. Universal took a license under

foreign counterparts to the Weiss patent. Flufion, Ltd., a

British company owned in part by Stoddard and Seem, also

took a license under Weiss.

The district court discounted the effect of the Universal

license, viewing it as merely an “economic decision based upon

a desire to avoid costly litigation over the Weiss patent since it

might be considered a dominating patent under the patent laws

in Europe”. There is no evidence, stated the district court, that

such “business judgment” amounted to gross negligence or

recklessness.

We agree that taking a license may have been an exercise in

good business judgment. We find the consideration irrelevant,

however, to a determination of whether the failure to disclose

the licensed patent, Weiss, to the PTO during prosecution of

the ’912 application, was grossly negligent or otherwise

“intentional”.

The license agreements are virtually conclusive evidence

that the applicants should have known of the materiality of

Weiss. Applicants may have believed that the ’912 process was

patentable over Weiss, but that they took a license under it in

connection with the sale of their machine that performed the

’912 process evinces knowledge of Weiss’ importance. A failure

to disclose Weiss in view of that knowledge constitutes reckless

disregard of the duty to disclose.

3. Rejections On Weiss Of Foreign Corresponding

Japanese, German and British applications corresponding to

the 912 application were filed during pendency of the latter.

The Japanese and German applications were rejected in view of

Weiss, and the Japanese application was eventually abandoned.

The British counterpart was allowed despite the citation of

Weiss.

43a

The district court stated that “while the applicants were

aware of the Weiss patent, there was no recognition on their

part of its materiality or relevance [in the United States] be-

cause of the differences in the patent laws of these foreign

countries as to disclosure, claims practice, forms of applica-

tions and standards of patentability”.

Differences in foreign patent laws may in other contexts be

important. They are not relevant in determining intent under-

lying a failure to disclose to the PTO. The controlling factor in

that determination is found in the nondisclosed information

itself. Whether the 912 applicants can be viewed as meeting

the threshold of intent to mislead the PTO has nothing to do

with rules governing disclosure, claims, applications and pat-

entability in foreign lands. Whether Weiss should have been

disclosed under those rules in those lands has no controlling

effect on whether it should have been disclosed to the PTO

here. That Weiss was cited and claims were rejected on Weiss in

applications corresponding to the 912 application should have

caused a reasonable applicant to have so recognized its mate-

riality in the PTO as to have led to its disclosure. No require-

ment exists to disclose to the PTO all references cited against

foreign corresponding applications; yet in the present circum-

stances the failure to cite Weiss in light of its citation in foreign

lands is strong evidence of intent to mislead.

4. Lex Tex’ Argument Re Intent

Citation of DaGasso in the prosecution of the ’724 applica-

tion, licensing under Weiss, and citation of Weiss in rejection of

foreign counterparts of the ’912 application, evince a degree of

awareness of the importance (materiality) of the references

sufficient to compel a conclusion that the district court’s no-

intent finding was clearly erroneous.

Lex Tex argues that if its narrow interpretation of the claim-

ed “control” means was incorrect, the ’912 applicants possessed

a good faith belief in that interpretation, and because that

interpretation renders We

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