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

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition for Writ of Certiorari
- **Published:** January 1, 1988
- **Citation:** 488 U.S. 822

## Text

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.

li
TABLE OF CONTENTS

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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 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.

5

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).

6

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

a

7

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.

8

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.

9

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

10

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.

1]

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).

12

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 |

13

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,

14

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).

|

15

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).

16

(“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).

17

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

18

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.

19

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

id

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,

v.

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.

al

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

a

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

EE

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)

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385019_1823%3A1. Public record. Not legal advice.