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

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition for Writ of Certiorari
- **Published:** January 1, 1985
- **Citation:** 474 U.S. 822

## Text

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,
V.
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

ii

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

1
1
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

iv

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

vl

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

1.

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

10

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.

2

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

11

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

12

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).

13

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.”

FE

14

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-

—

15

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: |

16

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.

17

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

18

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.

19

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

20

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.”

21

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.

22

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).

23

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.

24

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

25

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.

26

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

27

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:

28

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

29

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.

30

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

la

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.

2a

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

3a

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:

4a

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-

5a

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

6a

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

7a

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

8a

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-

9a

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
© ld in the United States to Throwsters who did not have or
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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385018_0268%3A1. Public record. Not legal advice.