Petition for Writ of Certiorari — Alumax Inc. v. U. S. Aluminum Corp./Texas

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87-1976

Supreme Court, u S.

FILED

MAY 31 1988

No. JOSEPH F. SPANIOL, JR.

: CLERK

In the Supreme Court

OF THE

United States

OCTOBER TERM, 1987

ALUMAX INC,

Petitioner,

VS.

U.S. ALUMINUM CORPORATION/ TEXAS,

Respondent.

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

STEPHEN V. BOMSE M. LAURENCE POPOFSKY

JEFFREY A. LEON HELLER, EHRMAN, WHITE

HELLER, EHRMAN, WHITE & McCAULIFFE

& MCAULIFFE 333 Bush Street

333 Bush Street San Francisco, CA 94104

San Francisco, CA 94104 Telephone: (415) 772-6000

Telephone: (415) 772-6000 Counsel of Record for

Of Counsel Petitioner Alumax Inc.

BOWNE OF SAN FRANCISCO. INC. « 190 NINTH ST. « S.F.. CA 94103 « (4:15) 8642300

QUESTIONS PRESENTED

1. Does an appellate court have unlimited discretion to disre-

gard a party’s unambiguous and strategic trial court concession of

law, contravening both the doctrine of invited error and the

fundamental principle that litigants define the factual and legal

contours of their disputes?

2. Does federal preemption require that the standard of proof

for a California malicious prosecution action for bad faith patent

enforcement be elevated from “‘a preponderance of the evidence”

to “clear and convincing evidence,” in order to avoid chilling

patentees’ incentives to protect their patents through infringement

suits?

RULE 28.1 LIST

The parent company of Petitioner Alumax Inc. is Amax Inc.

Alumax Inc.’s affiliates and subsidiaries (other than wholly

owned subsidiaries) are Aluminerie de Becancour Inc., Exal S.A..,

Idea S.A. and Mt. Holly Aluminum Company.

TABLE OF CONTENTS

Ouestions Presented... s..43. 60003 cee ee seen as

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Table of AmiROtHitt.......6 66 cisiws ewes eee

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Constitutional and Statutory Provisions Involved........

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Seotesnent of the Coes... ccc inion thin ntee eens

Reasons for Granting (00 Wi is. . 655i kccaescse eaten

1. By Disregarding Respondent’s Unambiguous and

Strategic Trial Court Concession, the Ninth Circuit

Contravenes the Doctrine of Invited Error and the

Fundamental Principle that Litigants Define the

Factual and Legal Contours of their Disputes.....

2. By Refusing to Apply Federal Preemption to Elevate

the Standard of Proof for Respondent’s California

Malicious Prosecution Claim from “A Preponder-

ance of the Evidence” to “Clear and Convincing

Evidence,” the Ninth Circuit Frustrates the Objec-

tives of the Fateet LOW8. «ic <cccaxckwasteneoes

Pn, PP Tey er roe

Appendix A—Opinion and Judgment of the Ninth Circuit

Appendix B—Opinion and Judgment of the Northern

District of CARA. «5 65s kapeenxcbsens

Appendix C—U.S. Aluminum’s Memorandum in Opposi-

tion to Alumax’ Motion for Summary Judg-

WOE. 2 sick ka Sacha eeeeeeate ee eee

Appendix D—May 29, 1986 Transcript of District Court

Hearing on Alumax’ Motion for Summary

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A-|l

A-6

A-11

ili

TABLE OF AUTHORITIES

Cases

Addington v. Texas, 441 U.S. 418 (1979) ............

Allison v. United States, 386 U.S. 13 (1967)..........

Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986) ..

Austin v. Unarco Industries, Inc., 705 F.2d 1 (1st Cir.

1983), cert. dismissed, 463 U.S. 1247 (1983) .......

Avila v. Immigration & Naturalization Service, 731 F.2d

i Sek check wecssecanceswas s

Bose Corp. v. Consumers Union of U.S., Inc., 466 U.S.

OUP b ie dh eich ctdesccdéaccduveccss

Bradford v. United States ex rel. Department of Interior,

ae PU GME, DOMED oo ccc ccscctcccsccs

Chaunt v. United States, 364 U.S. 350 (1960) ........

Colorado River Water Conservation District v. United

CVD, Inc. v. Raychem Co., 769 F.2d 842 (lst Cir. 1985),

cert. denied, 475 U.S. 1016 (1986) ................

Dimidowich v. Bell & Howell, 803 F.2d 1473, modified,

ee OO, COED onic ccaccccetvececs

Gertz v. Robert Welch, Inc., 418 U.S. 323 (1974) .....

Gilchrist v. Jim Slemons Imports, Inc., 803 F.2d 1488

re es io Cbs dpb a kee ea es a0

Greenholtz v. Nebraska Penal Inmates, 442 U.S. 1 (1979)

Gundy v. United States, 728 F.2d 484 (10th Cir. 1984)

Handgards, Inc. v. Ethicon, Inc., 601 F.2d 986 (9th Cir.

1979), cert. denied, 444 U.S. 1025 (1980) ..........

Helvering v. Wood, 309 U.S. 344 (1940) .............

Hines v. Davidowitz, 312 U.S. 52 (194!) .............

Hormel v. Helvering, 312 U.S. 552 (1941) ...........

In re Winship, 397 U.S. 358 (1970) .................

International Travelers Cheque Co. v. Bankamerica Corp.,

me Ee OE BUD 4g vn ccc ncsccvccecssses

Johnson v. Allyn & Bacon, Inc., 731 F.2d 64 (lst Cir.)

cert. denied, 469 U.S. 1018 (1984) ................

TABLE OF AUTHORITIES

CASES

Page

Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470 (1974) 16

Kincaid v. Sears, Roebuck & Co., 259 Cal. App. 2d 733

PE cc veo ears Sheba ne su beheenknan hansen sare 17

Loctite Corp. v. Ultraseal Ltd., 781 F.2d 861 (Fed. Cir.

Ser ery Pern pe rene ae ee 5

McPhail v. Municipality of Culebra, 598 F.2d 603 (Ist

ca occas a es ge ER LORE Cea ee eee 3

Merrill, Lynch, Pierce, Fenner & Smith, Inc. v. Ware, 414

Ce See RS cabal iv evr eeeaAdeaaeiee bres 17

Murphy v. City of Flagler Beach, 761 F.2d 622 (11th Cir.

| BERR Ser al re pete nN ears 2 pt a ne 3,11

National Hockey League v. Metropolitan Hockey Club,

Ps Se GE CE IE Cc bd voc cocskassGsaencess 14

Neal v. Farmers Insurance Exchange, 21 Cal.3d 910

CUPECLS CCS ALaR EER De ee CERT A ee ides 84 edb a ETeKeS 19

Partenweederei, MS Belgrano v. Weigel, 313 F.2d 423

(9th Cir. 1962), cert. denied, 373 U.S. 904 (1963)... 1]

Pullman-Standard v. Swint, 456 U.S. 273 (1982) ...... 1]

Reactive Metals & Alloys Corp. v. ESM, Inc., 769 F.2d

oo g ke | ee errr 16

Santosky v. Kramer, 455 U.S. 745 (1982) ............ 5,15

Schiavone v. Fortune, 750 F.2d 15 (3d Cir. 1984), afd,

eee Oe RE Sn aon de aks 6dNoucueceacs 3,11, 14

Silver v. New York Stock Exchange, 373 U.S. 341 (1963) 17

Terkildsen v. Waters, 481 F.2d 201 (2d Cir. 1973)..... 1]

Wetherbee v. United Insurance Co. of America, 18 Cal.

Se et ED oa ak cnaceueeasdudeunhacaneaes 19

Woodby v. Immigration & Naturalization Service, 385

Se CEE Ch bckosahaaxnreaeddeesans nesdeude 15

[ABLE OF AUTHORITIES CITED

Statutes

9th Cir. Rule:

BS shia cdc due VERAG ANN RARER EASE R EERE OOS

RE Tee rere EP EE rae

_ PEPEE EEE PCLT TREE T OUT eT Petre T

SEPP OUPOTEETETT eT Pere eee Pee E CLE ee

18 U.S.C.:

Se Se RO eee iT

28 U:S.C::

U.S. Constitution:

ne he peer ener ets!

mt Ob 0t 4 bo eee

Page

réaek 14

TABLE OF AUTHORITIES CITED

Page

Other Authorities

Abel, A Comparitive Theory of Dispute Institutions in

Society, 8 Law & Society Rev. 217 (1973)........... 9

Damaska, Structure of Authority and Comparitive Criminal

Procedure, 84 Yale L.J. 480 (1975) .............4.. 13

Hazard, The Adversary System, in Ethics in the Practice of

BD CEPUES 6 660.060 dhe cds eeEeEeEReRRAee SK eeRerens

Leff, Law and, 87 Yale L.J. 989 (1978) ............4.. 9

Restatement (Second) of Judgments, § 27 (1981) ...... 1]

Shapiro, Toward a Theory of Stare Decisis, | J. Legal Stud.

RD CODTaD &ckcccckbactuvasenuageeéaduscewadaueant 13

No.

In the Supreme Court

OF THE

United States

OcTOBER TERM, 1987

ALUMAX INC,

Petitioner,

VS.

U.S. ALUMINUM CORPORATION/TEXAS,

Respondent.

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

Petitioner Alumax Inc. (“Petitioner” or “Alumax”) respect-

fully prays that a writ of certiorari issue to review the judgment

and Opinion (“the Opinion”) of the United States Court of

Appeals for the Ninth Circuit (“the Ninth Circuit”) in the

above-entitled case.

OPINIONS BELOW

The Ninth Circuit Opinion as amended, reported at 831 F.2d

878, appears in Appendix A (A-1 to A-5) attached to this

Petition. The Opinivun of the United States District Court for the

Northern District of California, reported at 636 F. Supp. 441,

appears in Appendix B (A-6 to A-10) attached to this Petition.

JURISDICTION

Respondent U.S. Aluminum Corporation/Texas (“Respon-

dent” or “U.S. Aluminum”), a Texas corporation, invoked diver-

sity jurisdiction (28 U.S.C. § 1332) to sue Petitioner, a California

corporation, in the Northern District of California for malicious

prosecution arising out of a prior patent infringement suit. On

June 12, 1986, Judge Weigel granted summary judgment to

Petitioner. On November 3, 1987, however, the Ninth Circuit

entered an Opinion, as amended on November 25, 1987, which

reversed and remanded the District Court’s judgment. A timely

petition for rehearing en banc was denied on March 1, 1988, and

this Petition was filed thereafter within 90 days. The jurisdiction

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

CONSTITUTIONAL AND STATUTORY PROVISIONS

INVOLVED

U.S. Constitution art. 1, § 8, cl. 8:

“The Congress shall have Power... To Promote the Progress

of Science and useful Arts, by securing for limited Times to

Authors and Inventors the exclusive Right to their respective

Writings and Discoveries.”

35 U.S.C. § 285:

“The court in exceptional [patent infringement] cases may

award reasonable attorney fees to the prevailing party.”

INTRODUCTION

This suit presents important issues of judicial administration

and federal preemption. It arises from an earlier proceeding in

which Respondent successfully defended itself against Alumax’

patent infringement claim but failed to establish by clear and

convincing evidence that Alumax brought that claim in bad faith.

Respondent then brought a malicious prosecution action in the

Northern District of California (“the District Court”) for

Alumax’ purported bad faith patent enforcement. Alumax moved

for summary judgment on the ground that the applicable standard

of proof for its alleged bad faith was clear and convincing

evidence, the identical standard which the Federal Circuit previ-

ously held Respondent had failed to prove in the underlying

patent infringement action. Respondent’s counsel conceded in

oral argument before the District Court “that we would be bound

by the standard of clear and convincing and I’m prepared to meet

that standard, and I think we can even beat that.” A-25. Relying

on that concession, the District Court granted summary judgment

on the basis of collateral estoppel. A-8. But the Ninth Circuit

reversed that ruling. It held that Respondent’s concession was of

“no effect,” and that the policies which require raising the

standard of proof in antitrust actions for bad faith patent enforce-

ment to clear and convincing evidence were inapplicable to state

law malicious prosecution claims. See A-3 to A-S.

At first glance, the Opinion appears unremarkable. It is rela-

tively brief and unanimous. Yet the Opinion’s reasoning is ex-

traordinary in two respects.

First, there is no question but that Respondent made a strate-

gic, but ultimately fatal, concession in the trial court. Notwith-

standing the substantial policies underlying the rule that litigants

may not raise new issues on appeal absent exceptional circum-

stances—much less issues specifically conceded in the trial

court—the Ninth Circuit agreed that the concession was improvi-

dent and disregarded it. This reprieve inexorably clashes with the

doctrine of invited error, and conflicts in principle with numerous

decisions in other Circuits which are based on circumstances

indistinguishable from this case.' By resting its holding exclu-

sively on the principle that “[a]ppellate courts are not bound...

' See, e.g, Murphy v. City of Flagler Beach, 761 F.2d 622, 630 (11th

Cir. 1985); Schiavone v. Fortune, 750 F.2d 15, 18-19 (3d Cir. 1984),

aff'd, 106 S. Ct. 2379 (1986); Gundy v. United States, 728 F.2d 484, 488

(10th Cir. 1984); International Travelers Cheque Co. v. Bankamerica

Corp., 660 F.2d 215, 223-24 (7th Cir. 1981); McPhail v. Municipality of

Culebra, 598 F.2d 603, 607 (ist Cir. 1979) (“A party may not ‘sandbag’

his case by presenting one theory to the trial court and then arguing for

another on appeal.”).

by stipulations as to the substance of law” (A-3), the Ninth

Circuit effectively extinguishes the invited error doctrine. More-

over, the Opinion is at odds with the fundamental principle that,

with rare exceptions, the parties—not the court—determine the

factual and legal issues in the litigation. Litigants frequently, for

strategic reasons, make explicit and implicit concessions concern-

ing issues which they choose not to contest. This Opinion will

significantly impair judicial administration because courts will no

longer be able to rely on counsels’ decisions to concede, withdraw

or not even raise issues.

This Court has long adhered to a restrictive standard which

bars consideration of new issues on appeal unless there are

exceptional circumstances (e.g., a change in law between the time

of trial and appeal) or significant prudential considerations (e.g.,

avoiding resolution of a constitutional issue).? While an issue

expressly conceded is a more persuasive example than an issue

never raised of a “new issue” which should not be, and routinely

is not, considered on appeal,’ the Opinion incongruously guaran-

tees appellate consideration of such conceded issues. Moreover,

the Opinion’s standardless review—ignoring whether exceptional

circumstances or prudential considerations even exist—departs

from settled precedent and impels the resolution of a difficult

issue of constitutional preemption.

Second, the Opinion wrongly decides the constitutional pre-

emption issue and thereby frustrates the goals of the patent laws.

There have been numerous occasions when this Court has ele-

vated the standard of proof for a cause of action based on state

? Hormel v. Helvering, 312 U.S. 552, 557 (1941). See, e.g., Johnson v.

Allyn & Bacon Inc., 731 F.2d 64, 73 (ist Cir.), cert. denied, 469 U.S.

1018 (1984) (“only in horrendous cases where a gross miscarriage of

justice would occur, and the new theory must be so compelling as to

virtually insure appellant’s success.”’).

> Bradford v. United States ex rel. Department of Interior, 651 F.2d

700, 704 (10th Cir. 1981) (rule “is particularly applicable where the

party wishing to raise the new issue on appeal invited the alleged error

below”). See Hormel v. Helvering, supra note 2; Helvering v. Wood, 309

U.S. 344, 348-49 (1940); cases cited in note 1.

law in order to protect federal interests.* Similarly, appellate

courts have uniformly raised the standard of proof in antitrust

actions for bad faith patent enforcement to clear and convincing

evidence to avoid diluting patentees’ incentives to bring infringe-

ment suits.°

Any suit challenging bad faith patent enforcement may sub-

stantially compromise constitutional interests in encouraging pat-

ents. But the Opinion ignores that—instead offering the

unprincipled assertion that the standard of proof should be more

demanding only when federal patent and federal antitrust laws

conflict. The Opinion admits that “conflict is possible between

state malicious prosecution laws and federal patent laws.” A-4.

Yet, it then formalistically ignores that the malicious prosecution

suit here subjects patentees to a comparable, and invariably more

uncertain, threat of punitive damages than the antitrust laws’

treble damage remedy. The Opinion therefore, by failing to

elevate the standard of proof, advances a state law remedy at the

expense of the substantial chilling of the federal constitutional

patent right.

STATEMENT OF THE CASE

Howmet Aluminum Corp. (“Howmet”) filed a patent infringe-

ment suit against Respondent in March 1982 in the United States

District Court for the Northern District of Texas. Shortly before

trial, Howmet was acquired by Alumax. One of Respondents’

counterclaims in that suit was that Howmet’s “action and Plain-

tiffs [Howmet’s] charge of infringement and the proceedings to

date were recklessly filed and pursued in bad faith.” Excerpts

* See, e.g., Santosky v. Kramer, 455 U.S. 745, 758-61 (1982); Adding-

ton v. Texas, 441 U.S. 418, 423-27 (1979); Gertz v. Robert Welch, Inc.,

418 U.S. 323, 342 (1974).

° See, e.g., Loctite Corp. v. Ultraseal Ltd., 781 F.2d 861, 876-77 (Fed.

Cir. 1985); Handgards, Inc. v. Ethicon, Inc., 601 F.2d 986, 993-96 (9th

Cir. 1979), cert. denied, 444 U.S. 1025 (1980). Cf CVD, Inc. yv.

Raychem Co., 769 F.2d 842, 849-51 (1st Cir. 1985), cert. denied, 475

U.S. 1016 (1986) (antitrust action for alleged bad faith claim of trade

secrets under state law).

from the Record (“E.R.”) 58, 9 f. The trial court agreed, and

“specifically found said underlying patent infringement action to

have been brought and thereafter maintained in bad faith.” E.R.

4,912 & 90-100. But the Federal Circuit held that there was

utterly no basis for awarding attorneys’ fees to Respondent:

“ W Je are compelled to reverse the award of fees here [under 35

U.S.C. § 285] because the court clearly erred in basing its finding

on Howmet’s shifting theories for infringement under the doctrine

of equivalents, and alternatively finding that the Biebuyck and

Schlattman affidavits were filed in bad faith and not on personal

knowledge.” E.R. 115-16.

Even before the Federal Circuit had ruled, Respondent sued

Alumax for malicious prosecution in the Northern District of

California.© Alumax moved for summary judgment on the ground

that the Federal Circuit’s finding of no bad faith collaterally

estopped Respondent’s malicious prosecution claim. Respon-

dent’s principal argument against that motion was that numerous

evidentiary facts allegedly unresolved by the Federal Circuit

made collateral estoppel inappropriate. See A-18 to A-21. Re-

spondent did not contest that the proper standard of proof was

clear and convincing evidence (see A-11 to A-22)—the same

standard the Federal Circuit applied in the underlying patent

infringement action when it held that Alumax had not enforced

its patent in bad faith.

At the summary judgment hearing, Respondent unambiguously

conceded that it was obligated to prove its malicious prosecution

claim by clear and convincing evidence. A-25. That concession

was strategic.’ Relying on Respondent’s concession and rejecting

° The initial complaint contained claims for malicious prosecution

(founded on diversity jurisdiction) and antitrust and RICO violations.

’ Respondent’s opposition to Alumax’ summary judgment motion

rested almost exclusively on the argument (abandoned on appeal by

Respondent’s new counsel) that the issue of Alumax’ bad faith was not

“actually litigated” in the underlying patent infringement suit. See A-18

to A-21. To persuade the District Court that this argument should

prevail, Respondent’s counsel asserted that evidence of liability was

overwhelming—he was prepared “to even beat” the clear and convincing

Respondent’s attempt to raise facts known at the time of the

patent infringement action to frustrate collateral estoppel, the

District Court granted summary judgment in favor of Alumax.

A-8.

The Ninth Circuit reversed the District Court’s ruling. First, it

dismissed Respondent’s trial court concession—reasoning that

“[a]ppellate courts are not bound... by stipulations as to the

substance of law....and that the stipulation by Aluminum’s

former counsel is of no effect.” A-3. Second, it reached the

constitutional issue which the District Court had avoided (by

relying on Respondent’s concession), and proceeded to reject

raising the standard of proof to clear and convincing evidence.

The Ninth Circuit observed that it had employed that higher

standard “to provide reasonable protection for the honest patentee

who brings an infringement action” against antitrust suits, and

that there was “surface appeal” to affording the same protection

to patentees subject to malicious prosecution claims. A-4. Never-

theless, the Ninth Circuit refused to apply federal preemption

because “the policies underlying ... state malicious prosecution

laws and federal patent laws... are not inherently antithetical,”

and the “chilling effect... [of an antitrust suit] upon the good

faith actions of patentees is far greater than that posed by

enforcement of state malicious prosecution laws.” A-4 & A-S. It

is from this decision that the instant Petition follows.

standard of proof. A-25. That was a knowing and thoughtful decision

made by experienced trial counsel to help his client overcome the

exigency that he perceived at the time.

REASONS FOR GRANTING THE WRIT

1. BY DISREGARDING RESPONDENT’S UNAMBIGU-

OUS AND STRATEGIC TRIAL COURT CONCESSION,

THE NINTH CIRCUIT CONTRAVENES THE DOC-

TRINE OF INVITED ERROR AND THE FUNDAMEN-

TAL PRINCIPLE THAT LITIGANTS DEFINE THE

FACTUAL AND LEGAL CONTOURS OF THEIR

DISPUTES.

Certiorari should be granted to consider whether appellate

courts are free to disregard a party’s concession concerning the

legal rules governing a dispute. While the rather cursory attention

given to that issue below does not suggest a question meriting the

discretionary jurisdiction of this Court, Petitioner submits that

quite the opposite is the case: the decision below is, in fact,

premised upon a radical and erroneous view of the judicial process

which will have a deleterious impact on case administration.

Perhaps the most fundamental premise of our judicial system is

that it is an adversary system: that is, a system for the resolution

only of genuine® disputes which parties elect to bring into the

courts, as opposed to disputes which are disregarded, negotiated,

arbitrated or resolved through some other non-judicial mecha-

nism. There is no publicly-mandated obligation to litigate at all.

Parties similarly are free to forego particular claims or defenses

and to determine for themselves the terms upon which an action,

once filed, will be discontinued.’ Parties also determine (within

broad limits) the evidence which they will proffer and the

arguments which they will advance. Hence, “the adversary sys-

tem is distinctive for the fact that the parties, through their

lawyers, investigate the facts, frame the legal issues, and present

the evidence to a passive tribunal that then reaches decision.”

Hazard, “The Adversary System,” in Ethics in the Practice of

Law 120 (1978).

® Hence Article III’s “case and controversy” requirement. See U.S.

Constitution art. III, § 2, cl. 1.

* See Sup. Ct. R. 53; Fed. R. App. P. 42; Fed. R. Civ. P. 41.

That fundamental configuration is deeply rooted, and ordinarily

is beyond controversy. The Opinion, however, challenges that

basic adversary structure by holding that a party may not bind an

appellate court (and, hence, itself) to an “erroneous” position of

law. That rule, if upheld, will affect the nature of the litigation

process in fundamental respects. The issue therefore should be

considered by this Court as a matter of sound judicial administra-

tion. See, e.g., Colorado River Water Conservation District v.

United States, 424 U.S. 800, 817 (1976).

During pre-trial proceedings in this case, Respondent conceded

that it was obliged to produce clear and convincing evidence of

bad faith—a concession which was then expressly relied upon by

the District Court in granting Alumax’ motion for summary

judgment.'° See A-8 and A-25. Having thus failed in the trial

court, Respondent (through new counsel) invited the Ninth

Circuit to afford it a second chance by relieving it of the

consequences of its earlier strategic concession. The Ninth Cir-

cuit accepted that invitation, holding that “[a]ppellate courts are

not bound... by stipulations as to the substance of law.” A-3.

The premise of the Ninth Circuit’s decision is that it is the

function of appellate courts to determine, and correctly apply, the

law “regardless of what the parties say the law might be.” Jd.

(citing Dimidowich v. Bell & Howell, 803 F.2d 1473, 1477 n.1,

modified, 810 F.2d 517 (9th Cir. 1987)). While that is surely true

as a general proposition, it does not answer the question presented

here: whether the purported interest in a “correct” determination

of the law overrides the fundamental adversary structure of

litigation in which the litigants control the contours of their “case

or controversy.””"!

'© The relevant evidentiary standard was pertinent to the disposition of

Alumax”’ summary judgment motion under this Court’s decision in

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252-57 (1986).

'' There is nothing inevitable about this structure of adjudication.

Many countries adhere to the so-called “inquisitorial” mode of proce-

dure. See generally Abel, A Comparative Theory of Dispute Institutions

in Society, 8 Law & Society Rev. 217 (1973). Many other models can

easily be conceived. See Leff, Law and, 87 Yale L.J. 989 (1978). Our

The litigation process begins in the federal courts with the

initial pleadings and proceeds to a final pre-trial ordet which,

subject to certain narrow exceptions, controls the further COUrS¢ of

proceedings at trial and on appeal. There are numerous junctures

in the process where parties are called upon, or have the OPPortu-

nity, to narrow the loci of their factual and legal issues bY. making

concessions concerning matters of both fact and law which they

choose not to contest.’

Courts, as well as litigants, must be able to rely up" such

concessions. See International Travelers Cheque Co, a

Bankamerica Corp., 660 F.2d 215, 224 (7th Cir. 1981) (parties

precluded from complaining “of errors which... [they have }

committed, invited, induced the court to make, or to which...

[they] consented”). Yet under the Ninth Circuit’s feasoning

here, no concession as to a matter of law has meaning, however

conscious or strategic it may be.'? The Opinion then effectively

point here is only that given the adversary structure of the American

adjudicatory system, the decision below represents a material, if sub

silentio, departure which is sufficiently important to justify consideration

by this Court.

'2 There are a variety of strategic reasons behind such concessions. In

this case, trial counsel utilized the concession to a heightened standard

of proof to impress the District Court with the purported strength of

Respondent’s case on the merits. In other instances, a party may

abandon or never raise an issue because it appears too expensive to

resolve, or is less likely to produce a favorable result. Still again, a party

faced with a close, and undecided, question may elect not to press for the

most favorable ruling because of the significant risk of reversal on appeal

should the appellate court view the issue differently.

'? Lest the issue presented here be obscured, there are, of course,

mechanisms for redress of inadvertent concessions of fact and law. See,

e.g. Fed. R. Civ. P. 60. In addition, there are limited exceptions to the

invited error doctrine in “exceptional circumstances” such as where the

law changes while a case is on appeal, thus nullifying the premise of the

earlier concession. See Avila v. Immigration & Naturalization Service,

731 F.2d 616, 619 (9th Cir. 1984); Austin v. Unarco Industries, Inc., 705

F.2d 1, 15-16 (Ist Cir.), cert. dismissed, 463 U.S. 1247 (1983), These

situations, however, are far different from the holding below that

stipulations of law generally lack binding effect.

extinguishes the invited error doctrine, and conflicts in principle

with numerous decisions in other Circuits.’

The potential effect of permitting parties to escape routinely

from such invited errors is immense. No longer will courts be able

to effectively manage their dockets by relying on strategic deci-

sions to concede, withdraw or simply not raise certain issues.

Parties will have substantial incentives to acquiesce in erroneous

statements of the law in the trial court, only to reverse ground on

appeal (as here) in order to obtain a second bite if they lose. The

invited error doctrine exists precisely to prevent that scenario,’

There is no basis for appellate courts to review concessions of

law differently from concessions of fact. Surely if the conceded

point in this case had been one of fact rather than law,'* no one

would entertain seriously the suggestion that Respondent should

be permitted to argue on appeal that it was not bound by its

In Gundy v. United States, 728 F.2d 484 (10th Cir. 1984), the

plaintiff complained—like Respondent here—that the trial court had

applied a more demanding standard of proof (reasonable medical

certainty) than was required (reasonable medical probability). The

Tenth Circuit rejected that claim because the plaintiff had invited the

error by relying on that standard himself. Jd. at 488. See Murphy v. City

of Flagler Beach, 761 F.2d 622, 630 (11th Cir. 1985) (defendant held to

trial court concession that there was a statutory due process right to an

administrative hearing although Florida appellate courts were in disa-

greement on that legal issue); Schiavone v. Fortune, 750 F.2d 15, 18-19

(3d Cir. 1984), aff'd, 106 S.Ct. 2379 (1986). See also Fed. R. Civ. P. 51

which provides that the failure to object to proposed jury instructions

constitutes acquiescence in the legal principles they embody and a

waiver of any objections thereafter. See Gilchrist v. Jim Slemons

Imports, Inc., 803 F.2d 1488, 1493 (9th Cir. 1986).

'S See cases cited at note 1 supra; Terkildsen v. Waters, 481 F.2d 201,

204-05 (2d Cir. 1973); Partenweederei, MS Belgrano v. Weigel, 313

F.2d 423, 425 (9th Cir. 1962), cert. denied, 373 U.S. 904 (1963).

'’ And assuming, contrary to experience, that there were a “bright

line” distinction between “fact” and “law.” See, e.g, Bose Corp, v.

Consumers Union of U.S., Inc., 466 U.S. 485, 498-501 (1984); Pullman-

Standard v, Swint, 456 U.S, 273, 287-88 (1982); Restatement (Second)

of Judgments, § 27, at 253 (1981).

concession or that the court of appeals was free to determine, for

itself, the true facts “regardless of what the parties may say the

[facts] might be.”

The argument for a different rule in the case of concessions of

law presumably proceeds from an unarticulated premise that

whereas there is no non-private interest in whether a particular

fact is regarded as true or false in litigation, there is such an

interest in legal principles because they may be “generalized” as

part of the common law. But that suggestion must be considered

against the broader framework of an adversarial jurisprudential

system in which the essential judicial function is to resolve only

actual controversies within the bounds of the factual and legal

issues framed by the parties who voluntarily elect to submit their

dispute to the courts for resolution.'’ Whatever the public interest

in the “correct” determination of a legal issue, it has not been

considered the court’s function to decide issues which have not

been presented for resolution (or have been consciously with-

drawn from dispute), any more than it would be appropriate for a

court to assume facts contrary to those which the parties stipu-

lated to exist. Similarly, where litigants elect to resolve their

dispute short of final adjudication, it is not the province of the

judiciary to prevent them from doing so, notwithstanding the fact

that the result is to preclude resolutions of a matter of potentially

great legal, or even public, significance.'®

'? There are issues which may be raised by the court sua sponte such

as lack of subject matter jurisdiction. Such issues are the rare exception

and, invariably, result in /imiting rather than expanding the range of

matters to be decided. In fact, there are a number of doctrines which

serve that limiting function, such as justiciability, ripeness, standing (in

its non-Article III sense) and abstention.

'* See page 8 and note 9 supra. The most common exception to that

rule is class and derivative actions in which judicial approval of settle-

ment or discontinuance is required. That exception is not, however,

contrary to the principles discussed in text. Rather, approval is required

in class and derivative actions only because the outcome has an effect

upon the specific legal rights of persons who are not before the court, not

because there is an independent judicial interest in resolving the dispute

in a particular fashion,

I ee |

If the court’s “passive” position in resolving adversarial dis-

putes is to be taken seriously, the judicial function is appropriately

discharged by a court’s independence, its availability to decide

issues which are presented to it and its willingness to decide those

issues “correctly.” The fact that its decision may, in certain

circumstances, have “generalized” importance is no more a

necessary reason to compel courts to ignore a party’s concession

on a matter of law, than it is to compel litigation in the first

instance, or to preclude the settlement of cases once filed,'’

[SE Sees ee

’ In economic terms, the question of precedent can be viewed as an

“externalities” problem. As to any legal issue, “X”, litigants (A and B)

plus a partially determinate class (C) have an interest in its resolution,

the latter because, inter alia, it may affect the outcome of a future

dispute in which members of the class (C1, C2...) are involved. That

interest is taken account of, in part, by permitting non-parties to

participate in litigation as amicus curiae or, where the fit is particularly

close, by “representative” litigation. Within limits, strangers also may

influence the determination of legal issues by helping to finance the cost

of A’s suit against B or, even, by purchasing the claim outright

(“assignment”). However, there is no right to compel a party to litigate

or continue to litigate against his or her will.

Respondent might argue that the proper response to this “market

failure” problem is social intervention in the form of refusing to let a

party enter into, or be bound by, an “incorrect” stipulation of law. In

many countries, such an argument likely would be persuasive. Thus,

according to Professor Mirjan Damaska, “to continental eyes” our

system of legal rule creation resembles a “charmingly confusing Chagal-

lian universe of freely floating objects.” Indeed, it is typical “in many

countries” for supreme courts to “formally enunciate advisory legal

opinions” as a direct judicial means of influencing the development of

the law. Damaska, Structures of Authority and Comparative Criminal

Procedure, 84 Yale L.J. 480 (1975). However, rightly or wrongly,

American courts adhere—in the development of legal rules—to what

Martin Shapiro has described as a “litigational market,” a term which

“[he] use[s] precisely... to suggest an invisible hand... (T]his mar-

ket, like Adam Smith's, has many rules and conventions that harness

individual greed to a higher cause.” Shapiro, Toward a Theory of Stare

Decisis, \ J, Legal Stud, 125, 128 (1972), Stated simply, the process

relies upon individual litigants to determine what issues are litigated (or

not litigated) and how they are litigated,

What is more, the value of a legal principle as “precedent”

extends only so far as the material circumstances giving rise to it.

The notion that the development of the law will, in some way, be

adversely impacted, if a party is permitted to agree to an “errone-

ous” point of law, overlooks the fact that appellate decisions are

premised upon, and apply no further than, the particular circum-

stances which produce them, including concessions as to applica-

ble law.” As the Third Circuit recognized in refusing to permit a

party to escape a trial court concession, “[a]lthough plaintiffs

concession, of course, is irrelevant to the proper interpretation of

New Jersey law, it is dispositive of plaintiffs argument on appeal.”

Schiavone v. Fortune, supra 750 F.2d at 18-19.

At a minimum, resolution of the issue here presents an impor-

tant, and difficult, question about the litigation process. This

Court should not permit an apparently abrupt departure from

existing law (see cases cited at note | supra) and a material

retreat from the adversary model of adjudication without consid-

ering the important implications of the decision below upon the

administration of justice in the federal courts.”'

In terms of the case at hand, while one can argue in favor of the Ninth

Circuit's result on “market failure” grounds, it is hard to distinguish that

type of “solution” from, for example, a rule that would forbid a party

from abandoning litigation after the District Court has ruled on issue

“xX” if members of the stranger class (C1, C2) wish to have that ruling

reviewed on appeal. Moreover, the problem of “incorrect” legal rules

can be readily dealt with by less intrusive mechanisms, such as specify-

ing the existence of the stipulation in the court's opinion (the “true” rule

could even be enunciated as “dicta”) or by making sure that the

decision remains unpublished or otherwise is deprived of precedential

effect. See note 20 infra.

° Furthermore, cases which are sui generis or otherwise unsuited for

use as precedent are withheld from publication—and, thus, lack any

precedential significance. See, e.g., 9th Cir. R. 36-2 and 36-3.

2! While Petitioner would, of course, welcome plenary review, it

suggests that this may be an appropriate case for summary reversal. Sup.

Ct. R. 16.7, 17.1(a) and 23.1. See, e.g. National Hockey League vy.

Metropolitan Hockey Club, Inc., 427 U.S. 439 (1979); Allison v. United

States, 386 U.S. 13 (1967).

2. BY REFUSING TO APPLY FEDERAL PREEMPTION

TO ELEVATE THE STANDARD OF PROOF FOR RE-

SPONDENT’S CALIFORNIA MALICIOUS PROSECU-

TION CLAIM FROM “A PREPONDERANCE OF THE

EVIDENCE” TO “CLEAR AND CONVINCING EVI-

DENCE,” THE NINTH CIRCUIT FRUSTRATES THE

OBJECTIVES OF THE PATENT LAWS.

The standard of proof “represents an attempt to instruct the

factfinder concerning the degree of confidence our society thinks

he should have in the correctness of factual conclusions for a

particular type of adjudication.” Jn re Winship, 397 U.S. 358, 370

(1970) (Harlan, J. concurring). It “is a crucial component of

legal success, the primary function of which is ‘to minimize the

risk of erroneous decisions.” Santosky v. Kramer, 455 U.S. 745,

785 (1982) (Rehnquist, J. dissenting) (quoting Greenholtz vy.

Nebraska Penal Inmates, 442 U.S. 1, 13 (1979)). The standard

of proof therefore “serves to allocate the risk of error between the

litigants and to indicate the relative importance attached to the

ultimate decision.” Addington v. Texas, 441 U.S. 418, 423

(1979). As a result, litigants in most civil actions “share the risk

of error in roughly equal fashion” through the preponderance of

the evidence standard “[s]ince society has a minimal concern

with the outcome of such private suits,” whereas “society imposes

almost the entire risk of error upon itself” in criminal proceedings

by demanding proof of guilt beyond a reasonable doubt. /d. at

423-24.

This Court has routinely adopted an intermediate standard of

clear and convincing evidence in civil cases in which “particularly

important individual interests” are at stake.” Jd. This heightened

standard also has been applied to civil suits which involve state

law claims, when federal interests of sufficient magnitude have

been implicated. See cases cited in note 4 supra. For example,

clear and convincing evidence has been required for civil commit-

ment proceedings (see Addington v. Texas, 441 U.S. at 425

2 See, e.g. Woodby v. Immigration & Naturalization Service, 385

U.S. 276, 285 (1966) (deportation); Chaunt v. United States, 364 US.

350, 353 (1960) (denaturalization).

(“civil commitment for any purpose constitutes a significant

deprivation of liberty that requires due process protection”) ), and

for libel suits against public figures. See Gertz v. Robert Welch,

Inc., 418 U.S. at 342 (accommodating first amendment interests

in freedom of speech and press).

Because of the need to preserve adequate incentives under the

federal patent laws,” appellate courts have uniformly raised the

standard of proof in federal antitrust actions for bad faith patent

enforcement to clear and convincing evidence. See cases cited in

note 5 supra. These decisions rest on the ground that:

[S]uch barriers to antitrust suits . . . are necessary to provide

reasonable protection for the honest patentee who brings an

infringement action to promote his legal monopoly... .

[T]he jury should be instructed that a patentee’s infringe-

ment suit is presumptively in good faith and...can be

rebutted only by clear and convincing evidence. Such an

instruction accords the patentee a presumption commensu-

rate with the statutory presumption of patent validity set

forth in the patent laws...

Hangards, Inc. v. Ethicon. Inc., 601 F.2d 986, 996 (9th Cir.

1979), cert. denied, 444 U.S. 1025 (1980) (preponderance of

3 The major purpose of the federal patent laws always has been to

promote scientific progress “by offering a right of exclusion for a limited

period as an incentive to inventors to risk the often enormous costs in

terms of time, research, and development.” Kewanee Oil Co. v. Bicron

Corp., 416 U.S. 470, 480 (1974). An essential component of the

inventor's incentive to invest substantial resources in research and

development is that the exclusive right to profit from the invention is

truly exclusive. Consequently, the patent holder must be able to protect

its patent through infringement suits. Both Congress and the federal

courts have recognized that any significant restriction on a patent

holder’s ability to sue potential infringers would seriously stifle the

incentive to invent. See 35 U.S.C. § 285 (“The court in exceptional

[ patent infringement] cases may award reasonable attorney fees to the

prevailing party.”); Reactive Metals & Alloys Corp. v. ESM, Inc., 769

F.2d 1578, 1582 (Fed. Cir. 1985) (no attorneys fees awarded against

patentee unless patentee’s bad faith is demonstrated by clear and

convincing evidence).

evidence standard “might well chill” legitimate patent enforce-

ment efforts). Elevating the standard of proof for bad faith patent

enforcement becomes even more imperative because “ ‘[b]ad

faith’... is a subjective state of mind the existence of which,

while not susceptible to certain proof, easily can spring from

Suggestive and weakly corroborative circumstances.” Jd. at 993.

A malicious prosecution claim under California law presents a

comparable, and more uncertain, threat of punitive damages than

the antitrust laws, and therefore also necessitates proof of bad

faith by clear and convincing evidence.” Since Respondent failed

to prove Alumax’ bad faith by that same standard in the Federal

Circuit (see E.R. 195-96), its malicious prosecution claim should

be collaterally estopped. The Ninth Circuit, however, refused to

require clear and convincing evidence for two reasons: the policies

of state malicious prosecution laws and federal patent laws “are

not inherently antithetical” and malicious prosecution actions

allegedly have less of a “chilling effect” than antitrust actions on

good faith patent enforcement efforts. A-4 and A-5.

The first reason provides no principled basis for decision. The

decisions elevating the standard of proof in antitrust suits for bad

faith patent enforcement (see note 5 supra) were cases of implied

repeal, in which two federal statutory schemes conflicted.*> This

suit involves federal preemption. As this Court has held, implied

repeal and federal preemption analysis are virtually identical.”

** A plaintiff in a California malicious prosecution suit ordinarily must

establish bad faith by a mere preponderance of the evidence. See, e.g.,

Kincaid v. Sears, Roebuck & Co., 259 Cal. App. 2d 733, 739 (1968).

*® See Silver v. New York Stock, Exchange, 373 U.S. 341, 357 (1963).

Heeding the instruction that the proper approach is to reconcile the

operation of both statutory schemes with one another rather than

holding one completley ousted (see Merrill, Lynch, Pierce, Fenner &

Smith, Inc. v. Ware (Ware), 414 U.S. 117, 126 (1973)), these decisions

raised the standard of proof for an antitrust claim instead of immunizing

patent enforcement actions from antitrust scrutiny.

*° This Court in Ware, in determining whether certain California

Statutes were preempted by an alleged conflict with the federal securities

laws, explained: “In contrast with Si/ver we are not confronted here with

Both doctrines are triggered when a federal/state remedy (anti-

trust, malicious prosecution) “stands as an obstacle to the accom-

plishment and execution of the full purposes and objectives” of

the federal (patent) law. Hines v. Davidowitz, 312 U.S. 52, 67

(1941).

Refusing to elevate the standard of proof because the malicious

prosecution and patent laws are not “inherently antithetical”

therefore reflects an inexplicable schism whereby the objectives of

the patent laws will be protected through implied repeal but not

through federal preemption. The Opinion provides an open invita-

tion to circumvent the strictures on federal antitrust claims for

bad faith patent enforcement by suing on other grounds which

may just as severely impair patentees’ incentives. The policies of

civil RICO (a claim originally asserted by Respondent in this

suit) are hardly “inherently antithetical” to those of the federal

patent laws. See 18 U.S.C. §§ 1961-1968. But good faith patent

enforcement would be equally as “chilled” by a RICO treble

damage action as by an antitrust suit. Similarly, the policies

underlying bad faith patent enforcement claims based on state

laws for unfair competition and unfair trade practices (oftentimes

with potential double or treble damage exposure) are not “‘inher-

ently antithetical” to the policies of the federal patent laws, yet

such suits may significantly discourage patent enforcement ef-

forts. Indeed, it is uncertain under the Opinion’s reasoning

whether clear and convincing evidence would be required even for

State antitrust treble damages suits for bad faith patent

enforcement.

The Opinion secondly asserts that the chilling effect from the

threat of treble damages under the antitrust laws upon the good

faith actions of patentees “is far greater” than that posed by the

enforcement of state malicious prosecution claims. A-5. That

assertion is oblivious to punitive damage exposure under Califor-

nia’s malicious prosecution law, which poses a serious threat of

conflicting federal regulatory schemes. The present controversy concerns

the interrelationship between the statutes adopted, respectively, by the

Federal Government and a State. The analytical framework of Silver is

instructive nonetheless.” See 414 U.S. at 126 & n.8.

even greater than treble damages.”’ There is certainly no a priori

basis to conclude that the punitive damage threat to a patentee

from a malicious prosecution claim is any less than the threat

from a federal antitrust claim for treble damages. The Opinion

therefore undercuts the goals of the federal patent laws by

imposing a substantial chilling effect upon good faith patent

enforcement which will seriously impair the incentives of all

present and potential patentees.

CONCLUSION

For these reasons a writ of certiorari should issue to review the

judgment and opinion of the Ninth Circuit.

Dated: May 31, 1988

Respectfully submitted,

M. LAURENCE POPOFSKY

Counsel of Record

STEPHEN V. BOMSE

JEFFREY A. LEON

“HELLER, EHRMAN, WHITE &

McCAULIFFE

Of Counsel for

Petitioner Alumax Inc.

27 See, e.g., Neal v. Farmers Insurance Exchange, 21 Cal.3d 910, 927-

28 (1978) (approving punitive damages 74 times greater than compen-

satory damages); Wetherbee v. United Insurance Co. of America, 18 Cal.

App. 3d 266, 270-271 (1971) (approving punitive damages 200 times

greater than compensatory damages).

Appendix A

For Publication

United States Court of Appeals

for the Ninth Circuit

No. 86-2289

D.C. No.

CV-84-5995-SAW

U.S. Aluminum Corporation/Texas, a corporation,

Plaintiff-Appellant,

Vv.

Alumax, Inc., a corporation,

Defendant-Appellee.

Order and Amended Opinion

Appeal from the United States District Court

for the Northern District of California

Stanley A. Weigel, District Judge, Presiding

Argued and Submitted

May 15, 1987—San Francisco, California

Filed November 3, 1987

Amended November 25, 1987

Before: Joseph T. Sneed, Arthur L. Alarcon and

William C. Canby, Jr., Circuit Judges.

Opinion by Judge Canby

OPINION

CANBY, Circuit Judge

U.S. Aluminum Corporation sued Alumax, Inc. for malicious

prosecution. The district court granted Alumax’s motion for

summary judgment on the ground of collateral estoppel, and

Aluminum appealed. We review the district court’s entry of

A-2

summary judgment de novo. Fagner v. Heckler, 779 F.2d 541, 543

(9th Cir. 1985). We reverse and remand for further proceedings.

FACTS AND PROCEEDINGS BELOW

In the first lawsuit, Aluminum successfully defended a patent

infringement action brought by Alumax’s subsidiary Howmet

Aluminum Corp. The district court awarded attorneys fees to

Aluminum under section 285 of the federal patent law. 35 U.S.C.

§ 285. On appeal the Federal Circuit rejected appellant’s conten-

tion that Alumax had prosecuted that action in bad faith and

reversed on the attorney’s fees issue.

Aluminum then brought the present action, a suit for malicious

prosecution, against Alumax. Alumax filed a motion for summary

judgment. The district court granted the motion on the ground

that Aluminum was collaterally estopped from litigating a neces-

sary element of its claim. The district court explained that a

malicious prosecution claim, at a minimum, requires a showing of

bad faith. Aluminum would not be permitted to prove Alumax’s

bad faith, however, because the Federal Circuit had previously

found that Alumax had not acted in bad faith. Aluminum raises

three issues to challenge the application of collateral estoppel: (1)

the standard of proof of bad faith in the patent infringement suit

was higher than the standard appropriate for a malicious prosec-

tion claim; (2) there was an inadequate opportunity to conduct

discovery on the bad faith issue in the patent infringement action;

and (3) the Federal Circuit’s finding of no bad faith did not

resolve the same issue presented by the malicious prosecution

claim. Lg

DISCUSSION

A. Burden of Proof

Collateral estoppel may be applied against Aluminum on the

issue of good faith only if that issue was litigated in the previous

action under the same or a less rigorous standard of proof than

that required in the present action. One Lot Emerald Cut Stone v.

United States, 409 U.S. 232, 235 (1972) (per curiam). In the

previous action brought by Alumax, Aluminum was required to

A-3

prove bad faith by clear and convincing evidence in order to

establish its claim for attorneys’ fees. Reactive Metals & Alloys

Corp. v. ESM, Inc., 769 F.2d 1578, 1582 (Fed Cir. 1985). If

Aluminum is required to prove malice in the malicious prosecu-

tion action by a mere preponderance of the evidence, then there

can be no issue preclusion under the rule established in One Lot

Emerald Cut Stone.

At the hearing on Alumax’s motion for the summary judgment

now under review, Aluminum’s former counsel stipulated that it

must prove bad faith by clear and convincing evidence to establish

malicious prosecution. Aluminum now contends that the mali-

cious prosecution action brought under state law requires the

plaintiff to establish malice by a mere preponderance of the

evidence. See e.g. Kincaid v. Sears, Roebuck, & Co., 259 Cal.

App.2d 733, 739, 66 Cal. Rptr 915, 919 (1968).

We must decide, first, whether we are bound by Aluminum’s

stipulations below. Ordinarily courts are bound by the stipulations

of the parties. Appellate courts are not bound, however, by

stipulations as to the substance of law. Dimidowich v. Bell &

Howell, 803 F.2d 1473, 1477 n.1, modified 810 F.2d 1517 (9th

Cir. 1987). In Dimidowich, both parties entered into a stipulation

of law and the district court made its determination consistent

with that stipulation. On appeal the parties continued to rely on

that stipulation. Nevertheless, we held that we could not be bound

by an erroneous stipulation of law “regardless of what the parties

say the law might be.” Jd. at 1477. We conclude that the same

principle applies here, and that the stipulation by Aluminum’s

former counsel is of no effect.

We are left, then, with the task of determining the appropriate

burden of proof in this case. We agree with Aluminum that under

the California law of malicious prosecution, malice ordinarily

need be proved only by a preponderance of the evidence. See

Kincaid v. Sears, Roebuck & Co., supra. Indeed, Alumax does not

seriously dispute that proposition. Instead, Alumax argues that we

should require a higher standard of proof in this type of case in

order to prevent the state law cause of action from interfering with

the objectives of the federal patent law. In so arguing, Alumax

A-4

relies heavily on our decision in Handgards, Inc. v. Ethicon, Inc.,

601 F.2d 986 (9th Cir. 1979), cert. denied, 444 U.S. 1025 (1980).

Handgards was an antitrust action brought by a plaintiff who

alleged that the defendant had monopolized the relevant mar ket

by bringing a series of patent infringment actions in pad faith. The

trial court instructed the jury that bad faith in bringing the patent

actions need only be established by a preponderance of the

evidence. We reversed, holding that the jury should be instructed

that a patentee’s infringement action is presumed to be brought in

good faith, and the presumption can only be rebutted by clear and

convincing evidence. Jd. at 996. Our decision stemmed from the

“complex interaction” of the patent law and the arititrust law, a

matter of continuing concern to courts and comme/tators, Id, at

992. To protect the right of patentees to test the validity of their

patents in infringement suits, we erected a barrier to antitrust

suits, with their treble damages, “to provide reasonable protection

for the honest patentee who brings an infringement action to

protect his legal monopoly.” Jd. at 996. Thus the good-faith

patentee was protected from the too-easy retrospective finding by

a jury in a later antitrust case that his unsuccessful patent

infringement suit had been brought in subjective bad faith. See /d.

at 993.

Alumax argues that we should protect patentees from state

malicious prosecution actions in the same manner that we pro-

tected them from the antitrust laws in Handgards. Despite the

surface appeal of that argument, we reject it. First, we do not find

here the same kind of interrelationship that exists between the

patent laws and the antitrust laws. Patents confer a legal monop-

oly; the ground they occupy is necessarily carved out of that

otherwise occupied by the antitrust laws. In areas where each law

potentially extends, to broaden the coverage of one law necessa-

rily interferes with the policies behind the other. Proper adjust-

ment of the tension between the two is a continuing and delicate

exercise that has long engaged the federal courts. Jd. at 992.

While we do not deny that conflict is possible between state

malicious prosecution laws and federal patent law's, the policies

underlying each are not inherently antithetical. Patents do not

create an exemption from state malicious prosecution laws. In-

A-5

deed, the balance we reached in Handgards between the rights of

suing patentees and their defendants presupposed the continued

existence of state law remedies for bad faith suits; “nothing

appears to preclude a successful defendant in an infringement

action from bringing a common law malicious prosecution claim”

Id. at 998 n.17.

Finally, we must recognize that one of the reasons that we

found it necessary in Handgards to protect patentees from anti-

trust actions was that they posed the threat of treble damages. /d.

at 993, The chilling effect of that potential remedy upon the good

faith actions of patentees is far greater than that posed by the

enforcement of state malicious prosecution laws,

For all of these reasons, we decline to extend the rule of

Handgards to this California malicious prosecution action, Alu-

minum’s burden in this action is to establish malice by a prepon-

derance of the evidence. Consequently, Aluminum is not

collaterally estopped by its failure to establish, in the previous

litigation, bad faith by clear and convincing evidence.

B. Identity of the Issues and Opportunity for Discovery

Aluminum contends that collateral estoppel is inappropriate for

two additional reasons. First, the element of “exceptional circum-

stances” in the previous patent action is not identical to the

element of malice in the malicious prosecution action. Collateral

estoppel requires that the estopped issue be identical to an issue

litigated in a previous action. Second, the previous patent action

did not provide an opportunity for appellant to conduct full

discovery on the question of appellee’s malice in bringing that

action. Differences in discovery procedures may justify “not

allowing a prior judgment to have estoppel effect in a subsequent

action, even between the same parties.” Parklane Hosiery Co. v.

Shore, 439 U.S. 322, 331 n.15 (1979). Alumax contends that this

latter claim fails because Aluminum did not raise the issue in the

district court below and because in the previous action Aluminum

did not request (1) a bifurcated trial, (2) additional discovery

relevant to section 285, and (3) information from the appellee

directly. We need not reach any of these issues in view of our

ruling that the burdens of proof are different.

REVERSED AND REMANDED.

A-6

Appendix B

In the United States District Court

For the Northern District of California

No. C-84-5995 SAW

U.S, Aluminum Corp,/Texas,

Plaintiff,

V8,

Alumax, Ine.,

Defendant

ORDER GRANTING SUMMARY JUDGMENT IN

FAVOR OF DEFENDANT

[Filed June 12, 1986]

Defendant moves the Court for an order dismissing plaintiff's

case, or, in the alternative, for an order granting summary

judgment in defendant’s favor. The Court has considered the

briefs, arguments of counsel and the entire record in this matter.

Prior to its filing of this suit, plaintiff, U.S. Aluminum

Corp./Texas (US Aluminum), successfully defended against a

patent infringement suit brought by Howmet Aluminum, Inc.

During the litigation, Howmet was bought by Alumax, Inc.,

defendant herein (““Alumax” is hereinafter used to refer to both

Howmet and Alumax). At trial, US Aluminum sought to recover

its attorneys’ fees under 35 U.S.C. § 285, which provides for

recovery of attorneys’ fees by the prevailing party in a patent

infringement action in “exceptional cases.”

The trial court in the patent action awarded fees because, inter

alia, Alumax repeatedly changed its legal position during the

litigation and because certain affidavits filed by Alumax in opposi-

tion to US Aluminum’s summary judgment motion were not

based on personal knowledge, and so were filed in bad faith. The

Federal Circuit reversed, holding that it could not be said that the

affidavits were not made on personal knowledge, and that

Alumax’s shifting legal theories did not ipso facto lead to the

A-7

conclusion that the litigation was conducted in bad faith. The

circuit court did not address the other grounds discussed in the

trial court’s oral findings and conclusions, but concluded that the

trial court’s determination that the action was brought in bad

faith was “clearly erroneous.”

After the Federal Circuit’s decision, plaintiff filed this action

for malicious prosectuion,* Defendant claims that plaintiff is

collaterally estopped from asserting Alumax’s bad faith and so

moves to dismiss or, in the alternative, for summary judgment,

This motion raises two major questions, First, the Court must

determine what plaintiffs burden of proof will be at trial, Second,

if the burden is one of clear and convincing evidence, the Court

must decide whether the “issue” of Alumax’s bad faith was

decided in defendant's favor in the patent litigation.

Plaintiff's normal burden of proof in a malicious prosecution

case is a preponderance of the evidence. Kincaid v, Sears, Roe-

buck & Co., 259 Cal.2d 733 (1968). In order to recover attorneys’

fees in a patent infringement case pursuant to 35 U.S.C. § 285,

the prevailing party must establish bad faith by clear and convinc-

ing evidence. Reactive Metals and Alloys Corp. v. ESM, Inc., 769

F.2d 1578 (Fed. Cir. 1985). Plaintiffs failure to sustain the

higher burden in the patent action cannot estop him from at-

tempting to demonstrate his theory under the lower standard. One

Lot Emerald Cut Stones v. United States, 409 U.S. 232 (1972);

Peterson v. Clark Leasing Corp., 451 F.2d 1291 (9th Cir. 1971)

(per curiam).

But defendant argues that when the action underlying a mali-

cious prosecution case was for patent infringement, a plaintiff

must be held to the standard of proof dictated by § 285. The logic

of defendant’s argument is that Congress’ purpose in requiring the

higher standard of proof under § 285 would be frustrated if a party

could recover not only attorneys’ fees, but nonmonetary and

* Plaintiff filed a similar action in this Court prior to the Federal

Circuit’s ruling. That action included a claim for malicious prosecution

joined with two other claims. The malicious prosecution claim was

dismissed without prejudice. The other causes of action were dismissed

with prejudice.

A-8

punitive damages as well, by bringing a suit for malicious prose-

cution and being held only to proof by a preponderance of the

evidence. Plaintiff has stipulated that the higher standard is

appropriate.

The remaining problem is to determine the specific issue that

was decided in the first litigation. Defendant contends that the

question of bad faith was resolved. Plaintiff responds that the

Federal Circuit’s “narrow holding” should be limited to the

factual propositions explicitly resolved therein. US Aluminum

further states that there are a number of relevant factual allega-

tions that were not resolved by the appellate court. Taken in toto,

plaintiff claims these facts establish Alumax’s bad faith.

Plaintiff attempts to avoid collateral estoppel by “splitting” the

“ultimate issue” of Alumax’s bad faith into its component factual

parts. Although all of the facts plaintiff now urges in support of its

malicious prosecution action were known at the time of the first

trial, plaintiff contends that they were not all considered by the

trial court or the appellate court. It is not clear whether this would

be because plaintiff did not call all of these facts to the courts’

attention or the courts simply did not pass on all of the questions

before them.

Plaintiff cannot escape collateral estoppel by failing to raise all

of his contentions during the first litigation. His “failure to litigate

an issue actually raised as extensively as possible does not bar

estoppel.” Los Angeles Unified School Dist. v. Los Angeles Branch

of the NAACP, 714 F.2d 935, 945 (9th Cir. 1983).

If plaintiff did present all of the facts supporting its claims of

bad faith to the trial court in the earlier litigation, collateral

estoppel will apply only to the “issue” actually decided. United

States v. Roux, 437 F.2d 209 (9th Cir. 1971). The Restatement

(Second) of Judgments, § 27 comment c, sets out four factors to

consider in deciding whether the “issue” in this suit and the

patent action are the same. The factors are: (1) the overlap of

evidence and argument between the two issues; (2) whether the

new evidence and argument requires the application of new rules

of law; (3) whether pretrial preparation in the first case would

have disclosed to the parties the matter being litigated in the

A-9

second action; and (4) the closeness of the claims. See also

Starker v. United States, 602 F.2d 1341, 1344 (9th Cir. 1979)

(applying this test).

Applying the Restatement test, plaintiff is estopped from liti-

gating the issue of bad faith. The evidence and arguments in the

case at bar are identical with the ultimate issue resolved in the

patent litigation, and the same legal standards apply. At the trial

of the patent action, plaintiff was surely aware that a malicious

prosecution action might lie in the future. Finally, the elements

for recovery under § 285 are virtually identical to the elements of

a prima facie case for malicious prosecution.

Wright and Miller have noted that the doctrine of collateral

estoppel is most appropriately applied in those cases in which a

party seeks to advance new arguments regarding facts fixed at the

time of the first litigation. 8 Wright & Miller, Federal Practice

and Procedure, § 4417, p. 158. See also Akron Pressform Mold

Co. v. McNeil Corp., 496 F.2d 230 (6th Cir. 1974), cert. denied,

419 U.S. 997 (1975). The facts alleged by plaintiff in this suit

were all on the record at the time of the first trial and were

considered by the trial court in making its findings.

Plaintiff asserts that the appellate court’s narrow language in its

opinion reversing the trial court on the issue of recovery of

attorneys’ fees, limits the effect of collateral estoppel. However,

the Federal Circuit, by reversing but not remanding the trial

court’s holding, implicitly passed on the entire record and the

facts therein supporting the trial court’s judgment. Bose Corp. v.

Consumers Union of the United States, Inc., 466 U.S. 485 (1984).

By doing so, the appellate court effectively and finally disposed of

the entire issue of Alumax’s bad faith.

Because all the relevant facts are before the Court, summary

judgment, rather than dismissal, is appropriate. Accordingly,

A-10

IT IS HEREBY ORDERED that defendant’s motion for

summary judgment is granted, and judgment shall be entered in

its favor.

Dated: June 12, 1986

/s/ STANLEY A. WEIGEL

Judge

A-11

Appendix C

Townsend and Townsend

Paul W. Vapnek

Guy W. Chambers

One Market Plaza

Steuart Street Tower, 20th Floor

San Francisco, California 94105

Telephone: (415) 543-9600

Attorneys for Plaintiff

United States District Court

Northern District of California

Civil Action No. C84 5995 SAW

U.S. Aluminum Corporation/Texas,

Plaintiff,

Alumax, Inc.,

Defendant.

U.S. Aluminum’s Opposition to Alumax’s Motions

to Dismiss and/or for Summary Judgment

Date: May 29, 1986

Courtroom: 8

Time: 2:15 P.M.

INTRODUCTION

This is a malicious prosecution action arising out of the spiteful

commencement and prosecution of a frivolous patent infringe-

ment suit by Alumax’s predecessor, Howmet Aluminum Corpo-

ration (“Howmet”). Howmet Aluminum Corporation v. U.S.

Aluminum Corporation/Texas, Civil Action No. 3-82-426-G

(E.G.Tex., decided January 10, 1984). In the trial court’s deci-

sion in that action, U.S. Aluminum was completely exonerated of

Howmet’s infringement charges and awarded attorneys fees based

on two examples of Howmet’s bad faith. In summing up its

findings, the trial court stated:

“This is an action that should not have been brought and

after being brought should have been dismissed as the facts

became known to Plaintiff (Howmet).” (Leon Decl., Ex. 2,

p. 28)'.

Now Alumax contends in its summary judgment motion that

U.S. Aluminum should be collaterally estopped from maintaining

this malicious prosecution action because, on appeal, the Federal

Circuit held that the two examples of Howmet’s bad faith cited

by the trial court did not ipso facto establish sufficient “excep-

tional” circumstances to justify the award of attorneys fees under

35 U.S.C. § 285. (Leon Decl., Ex. 4, pp. 7-8). In that opinion, the

Federal Circuit affirmed the trial court’s findings of noninfringe-

ment, recognizing U.S. Aluminum as the prevailing party. (Leon

Decl., Ex. 4, pp. 6-7). As will be shown in this Opposition, there

is much greater evidence of Howmet’s maliciousness than the two

examples cited by the trial court and considered insufficient by

the Federal Circuit to award statutory attorneys fees. This evi-

dence raises numerous and substantial genuine issues of material

fact which may be resolved only at trial.

ISSUE

Is U.S. Aluminum collaterally estopped from raising material

issues of fact in this action which have neither been actually

litigated before or necessarily decided by the Federal Circuit?

STATEMENT OF FACTS

In July 1978, Howmet, through its attorney Mr. Thomas

Cantrell, first accused U.S. Aluminum of infringing Howmet’s

U.S. Patent No. 4,008,552 (“552 patent’). (Vand. Decl., § 3).

“Declaration Of Jeffrey A. Leon In Support Of Defendant Alumax

Motion To Dismiss And/Or For Summary Judgment.”

> “Declaration Of C.C. Vanderstar In Opposition To Alumax’s Mo-

tions To Dismiss And/Or For Summary Judgment.”

A-13

The *552 patent discloses and claims a structure for interconnect-

ing aluminum window dividers. Claim 2 of the 552 patent defines

this structure in terms of precise dimensional formulas.

In response to Howmet’s accusation, U.S. Aluminum asked

which of its products infringed and why. (Vand. Decl. ¥ 3). U.S.

Aluminum was told by Howmet that the water diverters or

flashing strips on its “Thermo-Set” window dividers were the

infringing structure (Vand. Decl. § 3). U.S. Aluminum then sent

Howmet a letter demonstrating that U.S. Aluminum’s flashing

strips were based on a design that had been known long before

Howmet’s patent. Apparently satisfied with U.S. Aluminum’s

response, Howmet did not pursue its claim. (Vand. Decl. § 3).

Not hearing anything further from Howmet, U.S. Aluminum

expanded its operations at the end of 1978 into Dallas, Texas,

Howmet’s home base. (Vand. Decl. 4). Over the years, U.S.

Aluminum’s business grew steadily in Dallas. By the end of 1982,

U.S. Aluminum had made a serious penetration into Howmet’s

window divider market with Texas sales exceeding $6 million.

(Vand. Decl. § 4). It was then that Howmet decided to resurrect

its abandoned charges of patent infringement.

Mr. Cantrell, Howmet’s attorney, sent U.S. Aluminum a draw-

ing of U.S. Aluminum’s Thermo-Set window divider with dimen-

sions from claim 2 of Howmet’s ’552 patent scribbled in the

margin. (Vand. Decl. 95). One of the dimensions was mis-

marked in an apparent attempt to stretch the claim to cover U.S.

Aluminum’s window divider. (Vand. Decl. 45). But even with

the advantage of this mismarked dimension, Cantrell’s drawing

showed on its face that U.S. Aluminum’s window divider would

not meet the requirements of Howmet’s claims. (Vand. Decl.

4 5). Despite his best efforts to gerrymander the claim dimen-

sions, Cantrell could still not fit the U.S. Aluminum window

dividers within the required claim dimensions.

Further, U.S. Aluminum explained in detail the baseless nature

of Howmet’s infringement charge to Howmet’s Vice President,

Mr. John Cameron, at a meeting in U.S. Aluminum’s Monterey

Park offices. (Vand. Decl. § 6). Nonetheless, Howmet refused to

be dissuaded from plowing ahead with its infringement suit.

A-14

Howmet filed its patent infringement suit against U.S. Alumi-

num in 1982. Howmet was so anxious to start its action that it did

not even bother to inspect one of U.S. Aluminum’s accused

window dividers prior to filing suit. (Leon Decl., Ex. 2, pp. 27-

28). Howmet initially contended that all its claims were infringed,

but soon had to fall back on only claim 2. (Vand. Decl. 97).

But even with respect to claim 2, Howmet could not get its own

inventor of the ’552 patent, Lawrence Biebuyck, to testify that

U.S. Aluminum’s accused window dividers satisfied the dimen-

sional requirements of claim 2. (Leon Decl., Ex. 2, p. 11). Mr.

Biebuyck admitted at his deposition that the formulas of claim 2

were not met by the accused U.S. Aluminum window dividers.

(Vand. Decl., 98). Mr. Biebuyck also acknowledged at his

deposition that each of the formulas of claim 2 were important to

the invention. (Vand. Decl. ] 8). Despite these disabling admis-

sions, Howmet still persisted with its lawsuit.

In opposition to U.S. Aluminum’s motion for summary judg-

ment, Howmet submitted the affidavits of Biebuyck and its

expert, Mr. Russell Schlattman. In both affidavits Howmet con-

tended that U.S. Aluminum’s window divider operated in sub-

stantially the same manner as the window divider of the 552

patent because U.S. Aluminum’s connecting flange had a similar

load-bearing function. (Leon Decl., Ex. 2, pp. 28-29). Neither

Biebuyck nor Schlattman, though, had bothered to inspect U.S.

Aluminum’s accused window divider prior to submitting their

affidavits. (Leon Decl., Ex. 2, pp. 30-31). At the summary

judgment hearing, U.S. Aluminum removed the connecting

flange from its window divider and demonstrated that the flange

had no load bearing function. (Leon Decl., Ex. 2, p. 30). Howmet

dropped its equivalence theory involving U.S. Aluminum’s flange,

but still persisted in pressing ahead with its lawsuit. (Leon Decl.,

Ex. 2, pp. 30-31).

At trial, Mr. Biebuyck admitted again that U.S. Aluminum’s

window dividers did not meet the dimensional requirements of

claim 2. (Vand. Decl., 99; Leon Decl., Ex. 2, p. 11). Even

Howmet’s own expert, Mr. Schlattman, testified that U.S. Alumi-

num’s window dividers did not meet the dimensional require-

ments of claim 2. (Leon Decl., Ex. 2, p. 24). Howmet’s attorney,

A-15

Mr. Cantrell, nonetheless sought to prove infringement of claim 2

by introducing a typed, blow-up version of the mismarked draw-

ings he had sent to U.S. Aluminum earlier in the case (Vand.

Decl. 49). On cross-examination, Mr. Schlattman established

the fact that his own attorney’s drawing was mismarked. (Vand.

Decl. 99). Undeterred by the lack of support from his own

expert, Mr. Cantrell also used another drawing depicting U.S.

Aluminum’s double panel window divider to try to prove that U.S.

Aluminum’s accused single panel window divider met the dimen-

sional requirements of claim 2. (Vand. Decl. { 10).

Disgusted with the frivolousness of plaintiff's case, the trial

court held that there was no infringement and that Howmet’s ’552

patent was invalid. The trial court stated in its opinion:

“Plaintiff [Howmet] recklessly brought this action without

any direct knowledge, examination or testing of the physical

items comprising the accused system of Defendant, or any

installation thereof, at the time of bringing of this action and

thereafter, despite clear evidence of non-infringement and

non-equivalence stubbornly persisted in maintaining this ac-

tion. After learning that Claim 2 of the patent in suit did not

describe Defendant’s Thermo-Set system, through admis-

sions of the Patentee, Lawrence Biebuyck, Plaintiff persisted

and continued to prosecute this action in bad faith in frivo-

lous disregard of the facts, and in a manner to unfairly

conceal or obscure or distort the facts."" (Leon Decl., Ex. 2,

pp. 27-28; emphasis added).

The trial court awarded U.S. Aluminum attorneys fees pursu-

ant to 35 U.S.C. § 285. The trial court cited Howmet’s shifting

theories of equivalence and the failure of Biebuyck and

Schlattman to execute their affidavits based on personal knowl-

edge as findings of fact which established the requisite “excep-

tional” circumstances. (Leon Decl., Ex. 2, pp. 28-37).

On appeal, the Federal Circuit affirmed the trial court’s find-

ings of non-infringement. (Leon Decl., Ex. 4, pp. 6-7). The

Federal Circuit, nonetheless, determined that the two grounds

cited by trial court did not, in and of themselves, establish

A-16

sufficient bad faith to meet the “exceptional case” test of 35

U.S.C. § 285:

“Although the district court correctly recognized the

heavy burden necessary to establish an exceptional case

under 35 U.S.C. § 285, we are compelled to reverse the

award of fees here because the court clearly erred in basing

its finding on Howmet’s shifting theories for infringement

under the doctrine of equivalents, and in alternatively finding

that the Biebuyck and Schlattmen affidavits were filed in bad

faith and not on personal knowledge .. .” (Leon Decl., Ex. 4,

pp. 7-8).

ARGUMENT

1. Congressional Enactment Of A Discretionary Fee Statute

For Patent Cases Has Not Precluded Application Of Califor-

nia’s Malicious Prosecution Law

Alumax devotes a substantial portion of its summary judgment

brief to a theoretical discussion of how California’s malicious

prosecution law “conflicts” with the federal attorney fees statute

for patent cases, 35 U.S.C. § 285. (Alumax Br., pp. 4-11).

Alumax implies that California’s malicious prosecution law may

somehow be pre-empted by the attorneys fees statute. Alumax,

nonetheless, correctly concludes at the end of its argument that

no such pre-emption exists and that U.S. Aluminum is not

precluded from bringing this malicious prosecution claim.

(Alumax Br., p. 11, fn. 7).

A state cause of action may only be pre-empted by federal

statute where the nature of the regulated subject matter permits

no other conclusion or where Congress has unmistakably ordained

such preclusion. DeCanas vy. Bica, 424 U.S. 351, 356, 47 L.Ed.2d

43, 49, 96 S.Ct. 933 (1976). (California statute regulating em-

ployment of aliens upheld despite the fact that the power to

regulate immegration is exclusively a federal power). In the field

of patent law, the Supreme Court has held on several occasions

that related state laws are not pre-empted by the federal patent

statutes. Kewanee Oil Company vy. Bicron Corporation, 416 U.S.

470, 40 L.Ed.2d 315, 94 S.Ct. 1879 (1974) (State trade secret

A-17

law is not pre-empted); Aronson v. Quick Point Pencil Co., 440

U.S. 257, 59 L.Ed.2d 296, 99 S.Ct. 1096 (1979) (State contract

law governing royalty agreements not pre-empted).

With regard to the attorneys fees statute for patent cases, 35

U.S.C. § 285, the Ninth Circuit has already recognized the right

of a prevailing litigant to use the antitrust laws as an alternate

means of recovering his attorneys fees from a prior patent in-

fringement defense. Handgards, Inc. v. Ethicon, Inc., 601 F.2d

986 (9th Cir. 1979). Unlike the subject matter jurisdiction statute

for patent cases cited in Alumax’s Brief, the patent attorneys fees

statute contains no language suggesting that it is the “exclusive”

remedy available to prevailing litigants. (Alumax Br., p. 6, fn. 3;

28 U.S.C. § 1338(a) and 35 U.S.C. § 285). The Ninth Circuit

has, in fact, explicitly stated in its Handgards decision that it sees

nothing to preclude a successful defendant in a patent infringe-

ment action from bringing a common law malicious prosection

claim. Handgards, supra, 601 F.2d at 998, fn. 17.

This explicit statement from the Ninth Circuit, along with the

absence of any unmistakable indication from Congress to the

contrary, amply establishes that U.S. Aluminum’s malicious pros-

ecution claim is not pre-empted or in “conflict” with the federal

attorneys fees statute in patent cases.

2. It Is Alumax, Not U.S. Aluminum, Which Bears The Burden

Of Proof On Alumax’s Summary Judgment Motion

Alumax argues in its Brief that U.S. Aluminum’s burden of

proof should be by clear and convincing evidence rather than by a

mere preponderance of the evidence. (Alumax Br., pp. 8-11).

Alumax’s argument completely misses the point.

Since it was Alumax, not U.S. Aluminum, which brought this

summary judgment motion, it is Alumax which bears the burden

of proof to clearly establish the non-existence of any genuine issue

of material fact. SEC v. Koracorp Industries, 575 F.2d 692, 697

(9th Cir. 1978); Program Engineering v. Triangle Publications,

Inc., 634 F.2d 1188, 1192 (9th Cir. 1980); F.R.C.P. 56(c). It

would be reversible error for this Court to shift the burden of

proof to U.S. Aluminum on summary judgment even though U.S.

Aluminum would bear the ultimate burden at trial. Koracorp,

A-18

supra, 575 F.2d at 698. On summary judgment, all factual

inferences are to be taken against the moving party, Alumax, and

in favor of the opposing party, U.S. Aluminum. Koracorp, id.

The question of what burden of proof U.S. Aluminum should

bear at trial is, at this point, premature.

3. U.S. Aluminum Is Entitled To Argue Claims And Factual

Issues Which Have Not Been Actually Litigated And Neces-

sarily Decided

Over the years, the courts have evolved the two doctrines of res

judicata and collateral estoppel to preclude relitigation of matters

which have been conclusively determined by a court of competent

jurisdiction. Montana v. United States, 440 U.S. 147, 152, 59

L.Ed.2d 210, 216, 99 S.Ct. 970 (1979); Parklane Hosiery Co. v.

Shore, 439 U.S. 322 (1979).

“The doctrine of res judicata provides that when a final

judgment has been entered on the merits of a case, it is a finality

as to the claim or demand in controversy, concluding parties and

those in privity with them, not only as to every matter which was

offered and received to sustain or defeat the claim or demand, but

as to any other admissible matter which might have been offered

for that purpose.” Nevada v. United States, 463, U.S. 110, 129-

130, 77 L.Ed.2d 509, 524, 103 S.Ct. 2906 (1983) (emphasis

added).

The “claims or demands” involved in the previous action were

for patent infringement, patent invalidity, antitrust violation and

statutory attorneys fees. To recover statutory attorneys fees under

35 U.S.C. § 285, the prevailing party must demonstrate that the

case was “exceptional”. See, Rohm & Haas Company v. Crystal

Chemical Company, 736 F.2d 688 (Fed. Cir. 1984).

The “claim or demand” involved in this action is for malicious

prosecution. The elements of a malicious prosecution claim under

California state law are: (1) a judicial proceeding favorably

terminated, (2) lack of probable cause, and (3) malice. Weber v.

Leuschner, 240 Cal.App.2d 829, 50 Cal.Rptr. 86 (1966).

Since there is no identity between the “claims or demands” of

the two actions, the doctrine of res judicata does not apply. Not

A-19

even Alumax contends that the doctrine of res judicata should

apply under the circumstances of this case.

Alumax instead relies on the doctrine of “collateral estoppel”.

The Supreme Court has defined collateral estoppel as precluding

“relitigation of issues actually litigated and necessary to the

outcome of the first action” in cases where the second action is

based upon a different cause of action than the first action.

Parklane Hosiery, supra, 439 U.S. at 326, fn. 5. The key distinc-

tion between collateral estoppel and res judicata for purposes of

Alumax’s motion is that collateral estoppel applies on/y to those

factual issues “actually litigated and necessary to the outcome” of

the prior decision whereas, by contrast, res judicata more broadly

precludes relitigation of factual issues that “might” have been so

litigated. See, United States v. Roux, 437 F.2d 209 (9th Cir.

1971). It is undisputed that collateral estoppel is the only one of

the two doctrines that can possibly apply to the facts of this case.

With this distinction in mind, the only factual issues which

were “actually litigated and necessary to the outcome” of the

Federal Circuit’s decision to deny U.S. Aluminum statutory

attorneys fees were:

(1) Whether Howmet’s shifting theories for infringement

under the doctrine of equivalents established ipso facto the bad

faith necessary for a finding of an “exceptional” case (Leon Decl.,

Ex. 4, pp. 6-7);

(2) Whether the failure of Biebuyck and Schlattman to in-

spect the accused device prior to submitting their affidavits in

Opposition to summary judgment established the bad faith neces-

sary to prove an “exceptional” case. (Leon Decl., Ex. 4, pp. 6-7).

The material factual issues raised by this Opposition which

tend to prove malicious prosecution but yet were neither consid-

ered by the Federal Circuit nor “actually litigated and necessary

to the outcome” of the Federal Circuit’s decision include:’

> By listing these factual issues, U.S. Aluminum in no way waives the

right to adduce further evidence of malicious prosecution during discov-

ery or to add to its list of factual issues as the case progresses.

A-20

(1) Whether Howmet’s resurrection of an abandoned patent

infringement claim in 1982 when U.S. Aluminum was penetrating

its market is evidence of malice;

(2) Whether Cantrell’s mismarking the dimensions of claim 2

on a drawing of U.S. Aluminum’s window divider is evidence of

malice and a lack of probable cause;

(3) Whether the visible failure of U.S. Aluminum’s window

divider to meet the dimensional requirements of claim 2 on

Cantrell’s drawing, even with the advantage of a mismarked

dimension, is evidence of malice and a lack of probable cause;

(4) Whether Howmet’s decision to press forward with its

lawsuit after the frivolousness of its claims was explained to its

Vice President is evidence of malice and a lack of probable cause;

(5) Whether Howmet’s decision to file suit without even

bothering to inspect the accused device is evidence of malice and

a lack of probable cause;

(6) Whether Howmet’s persistence in the lawsuit even after

its own inventor admitted in his deposition that the claims-in-suit

were’ not literally infringed is evidence of malice and a lack of

probable cause;

(7) Whether Howmet’s introduction of a mismarked, blow-up

exhibit at trial that even its own expert admitted was mismarked

is evidence of malice;

(8) Whether Howmet’s reference to a double panel diagram to

prove infringement of U.S. Aluminum’s single panel configura-

tion, when it was obvious that the single panel configuration did

not meet the claim requirements, is evidence of malice.

In an attempt to obscure the Federal Circuit’s actual holding,

Alumax contends in its Brief that the Federal Circuit has found

that U.S. Aluminum “failed to demonstrate that the (Howmet)

patent infringement action was instituted in bad faith...”

(Alumax Br., p. 14). Besides ignoring the carefully limiting

language chosen by the Federal Circuit for its holding, Alumax

fundamentally misunderstands the role of the Federal Circuit in

reviewing trial court decisions.

A-21

It is the trial court, not the Federal Circuit, which makes

findings of fact. F.R.C.P. 52. The role of the Federa! Circuit is to

review the trial court’s findings of fact to determine if they are

either clearly erroneous or insufficient to support the trial court’s

holding. Dennison Manufacturing v. Panduit Corp., No. 85-1150,

slip. op. at 2 (Sup.Ct. April 21, 1986) (Per Curium). In the case

of attorneys fees, if the Federal Circuit determines that the

findings of fact the trial court has relied upon to support its award

of attorneys fees are legally insufficient, the Federal Circuit must

set aside the award. Hughes v. Novi American, Inc., 724 F.2d 122,

124 (Fed.Cir. 1984); See Reactive Metals v. ESM, Inc., 769 F.2d

1578, 1582-1583 and 1585 (Fed.Cir. 1985). The Federal Circuit

will not make its own independent review of the record to

determine if there are any other facts which would support such

an award. Hughes, id.

In view of this procedure, the only factual issues “actually

litigated and necessarily decided” by the Federal Circuit in this

case were that Howmet’s shifting theories on the doctrine of

equivalents and that Howmet’s unsubstantiated summary judg-

ment affidavits were insufficient to find the case “exceptional”

enough under 35 U.S.C. § 285 to support an award of attorneys

fees. The Federal Circuit did not purport to address, nor could it

permissibly address, the larger issue of whether Howmet brought

their infringement suit in bad faith. That issue is accordingly

subject to legitimate dispute in this malicious prosecution action."

Further, even those two findings of fact which the Federal

Circuit found insufficient by themselves to support an award of

statutory attorneys fees should be available for U.S. Aluminum to

combine with other evidence of malice to prove, from a totality of

the circumstances, that Howmet prosecuted its patent infringe-

ment suit with malice and without probable cause.

* The Federal Circuit’s decision, in fact, never addressed the finding of

the trial court that, based on consideration of a// the evidence and

testimony, Howmet’s suit was brought “in bad faith in frivolous disre-

gard of the facts”. (Leon Decl., Ex. 2, p. 28). If any party should be

collaterally estopped to contest whether Howmet’s suit, as a whole, was

brought in bad faith, it should be Alumax.

pAz22

LUNE LESTON

Linder the law, LS. AWN may fet be collaterally es

lopped Wi feapeel to Taetial ieaiee whieh Were Welter aetually

litimaled nor Heeennarily deeided. Th (Nie ease, (here are numernue

enuine laaves af material faet eoneering Howmel's matioe and

veh of probable eauee whieh were never even considered by the

Federal Clreult, miuel leas addressed ih lh opinion Even the two

eraiples af Hawmetle bad faith eoneidered inauMeient ty the

Federal Cireuit ta, Wy Hhemeelves, auppert an award af atatutary

aliorneye fees may well he euleient, when presented in liaht al

other facts evidencing malice and lack af probable eause, to

justify a helding af malicious prosecution against Alumas. For

these reasons, “Alumax's Mation To Dismiss And/Or For Sum-

mary Judgment” should be denied in its entirety.

Respectfully submitted,

TOWNSEND and TOWNSEND

By GUY W. CHAMBERS

Guy W. Chambers

Attorneys for Plainuff

Dated May 15, 1986

A-23

APPENDIAND

in the Liniied States Diaitiet Gaur

Northern Distiet af Calitvrntia

lielove «The Hanarable Stanley A. Weigel, Judge

Cid (008 BAW

San Praneled, A

May 24, 1988

LS. Aluminum Carparation/ Texas

A Carperation,

Plain,

vs.

Alumax Inc., A Corporation,

Defendant.

TRANSCRIPT OF PROCEEDINGS

Appearances:

For the Plaintiff:

Paul W. Vapnek, Esquire

Townsend and Townsend

One Market Plaza

Steuart Street Tower, 20th Floor

San Francisco, CA 94105

For the Defendant

M_ Laurence Popofsky, Esquire

Jeffrey A. Leon, Esquire

Heller, Ehrman, White & McAuliffe

44 Montgomery Street

San Francisco, CA 94104

Court Reporter

Raymond Linkerman

450 Golden Gate Avenue

Hox 30052

San Praneiaen, CA OA102

Aint

Thureday, May 28) 1080

The Clerk: Civil We a008, LS AlWinuin Corparation ve

Alums, tie

Mi Vapnek) Chand afernaan, Your Hanar

The Cour Chawd afvernaan

Me Vapnek: Paul Vapnek: Tawneend and Tawheend, anne

ie on Behall af the plainly, LOS) Alwminul

Mr Papofeky: Good afveriaan, Your Haar, Larry Papaleky

and Jeffrey Leon, Heller, Ehrman, White & Me Auliffe, appear

ing an behalf af Alumas, Ine, the meaving party

The Court Yes, well, do you have anything to present that

hasn't been presented in writing?

Mr. Popofsky: I! believe, in fact, Your Honor, we have cov-

ered the waterfront.

Mr. Vapnek: Your Honor, there are perhaps one or two points

that I think might be stressed, especially in light of some of the

suggestions in the reply memorandum, that | think—

The Court: Well, iet’s—

Mr. Vapnek: —overstate the case.

The Court: Recently im these law and motion matters, I've

asked counsel to be seated, and we discuss things im an informal

fashion. Let's do that here.

Mr. Vapeck Fine. Thank you, Your Honor.

Mr. Popofsky: Thank you. Your Honor.

The Court Let's see what we agree upon. Do we agree that

the standard for recovery of attorncys’ fees im the patent suit

il aiad anil “sa “4 2s distinauished

from merely preponderance of the evidence? Is that agreed all the

way around”

Mr. Vapnek: | think we can concede that that's —

The Court - to be very careful. Don't just say “yes.” Mea-

sure your words and get the ather side to pul up a band and what

have you. There jan't mueh question about that, is there!

Mr Vapnek) Yea, Your Haney

The Faun There te na

AST.

Mr, Vapnek: There te not

The Cour Al Pht Obay. blake i an taawe (hats presently

heliave we ih Hite eame te whether ar Wat iy Ula eaae Nae Wvalielawa

ywomeeution, (he standard ahauld be the same, Your elatin would

(Wat (8 jet prepanderanee af the evidenee, rahe!

Mr Vapneks Th the Grdinary Miatiolaiie Praweeution Gaae,

Your Hanan the etandard would We a prepanderanee af the

evideriee, However ih Feviewiid The paper: | have sudwested ty

the elient that Ti * wired (a atipulate Uhdbee tt (he tal ab (ile

ease, that we would be haund by the standard af elear and

convineing evidence, and I'm prepared ta meet (hat standard, and

1 think we ean even beat that.

The Court; Well, that being the case--! misspoke, | should

have addressed that last question to the other side, but in view of

your willingness to so stipulate, what, in your view, does that leave

as the sole remaining issue—as to any remaining issue in this

case? Any one or more. What is there then to be—what is there

then at issue? The issue as to the standard of evidence has been

eliminated by your agreement as to the standard of proof. We

have before us now a motion to dismiss, or in the alternative, for

summary judgment. So what issue— issues or issue remains to be

disposed of in this present motion?

Mr. Vapnek- Well, Your Honor—

The Court That's up for grabs.

Mr. Popofsky- As we understand a, Your Homor, they take

the position that there are caght categones of fact. or caght facts.

and they identified them im their bricf, which they would like to

go to bat to prove, and they claim that if they can prove those

eight facts, then they'd been entitled to judgment.

The Cour: Yes.

Mr, Poposky; Our position is that those eight facts are evi-

dentiary af the ultimate fact, in the parlance of the original

restatement of judament, the ultimate fact af bad faith, whieh, of

eaurie, Waa the jaave in (he federal patent praeeeding. Sa the only

legal eave whieh Femaine ab tiie Pala le whether ap Hat Hie Baur

APPrApHAtEIY apple the featlatenient feet ta the elaine hab they

A-26

seek to preserve. And the restatement test which we cite in our

brief is that from section 27 of the restatement of judgments, circa

1982, which says, and I will quote it: “thus, for example, if the

party against whom preclusion is sought did in fact litigate an

issue of ultimate fact and suffered an adverse determination,”

which they claim they did, “new evidentiary facts may not be

brought forward to obtain a different determination of that ulti-

mate fact.” And then the restatement gives an example, in a

negligence context, where it says that if you were found negligent,

you can’t relitigate that in another case, on the grounds, well,

negligence as to speed is one thing, negligence as to going through

a red light is quite another.

And we take the position that whether or not those eight

evidentiary facts were or were not before the Federal Court in the

patent litigation, and plainly at least three were, the last three

obviously were before the court in the preceding litigation,

whether or not all eight were, the issue to which those eight are

directed, namely, bad faith, was clearly before the Federal Dis-

trict Court, and he ruled. He ruled there was bad faith, and that

ruling was reversed.

So our view is—

The Court: Yes.

Mr. Popofsky: —very simply—

The court: I understand—

Mr. Popofsky: Okay.

The Court: —lI think, your point.

I take it your answer to that—maybe you have a different

answer—is that some of the facts upon which you rely here were

not-—were not disposed of in the prior case; is that right?

Mr. Vapnek: That’s correct, Your Honor.

I would also suggest, Your Honor, that the question of bad

faith, while the Court of Appeals for the Federal Circuit men-

tioned bad faith, the only context in which bad faith was men-

tioned was the filing of the two affidavits.

The Court: Yes.

eae

A-27

Mr. Vapnek: There is a substantial other section of the

findings by Judge Fish, in which he talks about—

The Court: I understand that—excuse me for interrupting—I

understand the point you’re making, which is that the Court of

Appeals did not in terms say anything about a number of factors

that were before the trial court.

Mr. Vapnek: Exactly, Your Honor.

The Court: That’s your point.

Mr. Vapnek: Exactly.

The Court: I think you have some difficulty in that connec-

tion, and the difficulty is this: that the Court of Appeals didn’t

remand; it reversed. Therefore, if it’s not illogical, in attempting to

make some statement against the interests of this argument,

therefore, it’s not illogical to assume that the Court of Appeals

considered the entire record, and didn’t remand, but reversed, so |

think that—

Mr. Vapnek: But, Your Honor—

The Court: —lI think in this case your adversary has the

better of you.

Mr. Vapnek: That may be, Your Honor, but—but it seems to

me that they have really disregarded the differences between a

malicious prosecution action on the one hand, and the exceptional

case standard for the award of only attorney fees in patent cases

on the other hand. They are really two different kinds of relief.

The Court: Yes, that may be true, but if the standard to

govern is the same with respect to both kinds of relief, what

difference does it make?

Mr. Vapnek: I’m—the standard is not the same, because the

malicious prosecution action, the recovery, or the attempted

recovery, encompasses a great deal more than mere attorney fees.

And in fact, an award of attorney fees, as Your Honor knows,

under section 285 of Title 35, is discretionary, so that even if there

were a finding of bad faith, and even if the Court of Appeals had

affirmed a finding of bad faith, if Judge Fish had decided, in his

discretion, that he did not want to award attorney fees, there

would be no relief. And if we take Mr. Popofsky’s argument to its

conclusion, it would mean that would bar malicious prosecution

A-28

actions, and I find that difficult to comprehend, that there would

be some kind of intention in section 285 of encompassing the

field.

As a matter of fact, the award of attorney fees under sec-

tion 285 is not just on the basis of bad faith. It can be on the basis

of inequitable conduct, or even gross negligence, and the CAFC

talks about those factors.

The Court: What is your answer to that?

Mr. Popofsky: Well, I think, Your Honor, it is the answer of

the centuries, that they had their choice to hold their firepower,

keep it dry, not seek attorneys’ fees in the federal court, because

they did not think it was an adequate or suitable remedy for the

harm that they were suffering, and bring their malicious prosecu-

tion claim in—in state court, as Handgards appears to indicate

they could do, as an option—

The Court: Yes.

Mr. Popofsky: —and then seek it in state court, but they

didn’t do that.

The Court: Yes, but—

Mr. Popofsky: They fired their gun in federal court and

sought specifically an award of attorneys’ fees based on the factual

finding—

The Court: Well, that argument—the argument you now

make I do not find all that impressive, because it suggest that

there was a conscious—either conscious or inadvertent election,

which I don’t think is the case, but—

Mr. Popofsky: Well, Your Honor—

The Court: —you mentioned Handgards, and I think Hand-

gards tends to come to your rescue, because Handgards held, did

it not, that it was appropriate in a patent case, in view of the

governmental policy to uphold the rights of pantentees, to require

a higher standard than normal in a malicious prosecution—

Mr. Popofsky: Yes, it did.

The Court: —suit.

Well, I think we’ve explored it. Do you want to let the matter

stand submitted?

A-29

Mr. Popofsky: Yes. I would only add, Your Honor, before we

submit it, that I—with all respect, I don’t find the argument

persuasive that somehow the fact that the attorneys’ fees were the

target in the—in the federal action, and that malicious prosecu-

tion gives them a much more juicy target in state court, really

_ speaks to the question of collateral estoppel or res judicata. They

had a go at it. They elected to go at it, and they adjudicated it.

They sought an adjudication of it. It was fully litigated, both sides,

by counsel. Indeed, it was bitterly contested. And I’ve always

thought that those were the criteria for invoking the res judicata

and collateral estoppel, i.e., did you have a fair opportunity to

litigate, whatever the target, whatever the context, whatever the

cause of action.

The Court: All right.

Mr. Popofsky: Anyway, we’re prepared to submit it.

Mr. Vapnek: Your Honor, if I may—

The Court: Sure.

Mr. Vapnek: —at the risk of prolonging the matter, the

mention of Handgards suggests a different twist. The footnote,

footnote 17 in the Handgards case, seems to me to point in a

different direction from what counsel argues. That is, while it is a

footnote, and it’s really not a holding of the case, the court

suggests in Handgards that there are three ways to recover, and

they don’t seem to indicate that they’re mutually exclusive. The

court in footnote 17 mentions section 285, mentions malicious

prosecution, and mentions antitrust liability, and there’s no indi-

cation, and in fact, to the best of my knowledge, I’m sure counsel

will agree, there is no case on point addressing the issues in this

particular matter.

The Court: Well, the thing that you have in your favor is that

I read between the lines of Handgards, and it went farther than

you're asking for in patent litigation than it should have, and that

distresses me.

Mr. Vapnek: Considerably further.

The Court: But you submit it? Reluctantly.

Mr. Vapnek: We'll submit it, Your Honor.

A-30

The Court: One thing that I’m not clear on, maybe you—one

or both of you can help me: What’s the difference between

“Preponderance of the Evidence” and “Clear and Convincing

Evidence’’?

Mr. Popofsky: It’s metaphysical, Your Honor.

The Court: I think it’s very metaphysical. I don’t understand,

never understood it in the Handgards case. That’s why I said with

a twinkle that one could assume that the Court of Appeals—I’m

not talking about the Ninth Circuit now—considered the entire

record below, but as you know from your experience as a law

clerk, respected law clerk for one of the most highly respected

judges of this Court, some of us on the trial bench feel that the

reviewing court often fails to consider the record. You remember

that.

Mr. Vapnek: I remember that very well, Your Honor.

The Court: But don’t quote that to the Court of Appeals.

Mr. Vapnek: I shan’t. .

The Court: Ali night, gentlemen, thank you. You’re excused.

Mr. Vapnek: Thank you, Your Honor.

Mr. Popofsky: Thank you, Your Honor.

(Proceedings Adjourned)

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