Petition for Writ of Certiorari — Semiconductor Energy Laboratory Co. v. Samsung Electronics Co.
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: [) Supreme Court, U.S.
FILED
00 188 UL 25 20
No. 00-_
_E EE lhl el
In the Supreme Court of the Anited States
SAMSUNG ELECTRONICS Co., LTD., SAMSUNG
ELECTRONICS AMERICA, INC., AND SAMSUNG
SEMICONDUCTOR, INC.,
Petitioners,
Vv.
SEMICONDUCTOR ENERGY LABORATORY CoO., LTD.,
ON PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE FEDERAL CIRCUIT
PETITION FOR A WRIT OF CERTIORARI
RICHARD L. STANLEY DAVID J. HEALEY
HOWREY SIMON ARNOLD Counsel of Record
& WHITE, LLP GARY F. FISCHMAN
750 Bering Drive LIsA S. MCCALMONT
Houston, Texas 77057 GOLDSTEIN & HEALEY L.L.P.
(713) 787-1400 1177 West Loop South, 10" Floor
Houston, Texas 77027
CECILIA H. GONZALEZ (713) 877-1515
HOWREY SIMON ARNOLD
& WHITE, LLP Attorneys for Petitioners
1299 Pennsylvania Avenue, N.W. Samsung Electronics Co., Ltd., et al.
Washington, D.C. 20004
(202) 783-0800
QUESTIONS PRESENTED
1. Whether proven misrepresentations in a series of
related patent applications made as part of an intentional
scheme to deceive the United States Patent and Trademark
Office (“PTO”), can constitute mail fraud under 18 U.S.C. §
1341, on the theory that a patent which has not yet issued
from the PTO, is “property” of which the United States is
deprived when it issues the patent. !
2. Whether federal patent law preempts New Jersey
RICO claims when the state law RICO claims are based on
the predicate act of offering a false instrument to the PTO for
filing, and liability under the state law RICO offense requires
proof of additional elements beyond those that were required
to establish the inequitable conduct defense to patent
infringement liability.
_ 3. Whether the federal mail fraud statute, 18 U.S.C. §
1341, requires “convergence,” ie, that the
misrepresentations in question be directed at the target of the
fraud.
! The Court granted a writ of certiorari to the Fifth Circuit in Cleveland v.
United States, on the related quesiicn “Can alleged false statements or
omissions in applications for state licenses be the basis for federal mail or
wire fraud charges, on the theory that a license that has not yet issued
constitutes ‘property’ of the State, of which the State is deprived when it
issues the license?” Petition For A Writ Of Certiorari To The United
States Court Of Appeals For The Fifth Circuit, Cleveland v. United States
(filed in the Supreme Court Nov. 8, 1999) (No. 99-804).
PARTIES TO THE PROCEEDING
The parties to the proceeding in the United States Court
of Appeals for the Federal Circuit were petitioners Samsung
Electronics Co., Ltd., Samsung Electronics America, Inc.,
and Samsung Semiconductor, Inc. (collectively “Samsung”),
and respondent, Semiconductor Energy Laboratory Co., Ltd.
RULE 29.6 STATEMENT
For purposes of S. Ct. R. 29.6, Samsung Electronics
Co., Ltd. states that it is a publicly traded corporation
organized under the laws of the Republic of Korea. It has no
parent or publicly traded affiliates as those terms are
commonly employed under United States law, and there is no
parent or publicly held company owning 10% or more of its
stock. Samsung Electronics America, Inc., and Samsung
Semiconductor, Inc., are not publicly traded.
TABLE OF CONTENTS
CGUBS TIONS PRESENTED o.scccsvissscasinnsisinroseveharnsbenivecs dtcidece’ i
PARTIES TO THE PROCEEDING. .........:...ssccesoscsscsscccssseors ii
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STATUTORY PROVISIONS INVOLVED..............cccceeees 2
Raa REIUEE GE” UNE AFRIDI cncscsessosccevesnsscvincoynasesesvevenssonese 2
A. SEL Sues Samsung For Patent Infringement............. 2
B. Samsung’s Affirmative Defense Of
Inequitable Conduct And The Scheme That
Formed The Basis of Samsung’s RICO
ha aah ai iat cscasiensansvinienunantegaial 3
C. The District Court Proceedings Relevant To
cick cinakccssananciccdrninesstursbreaivencasettosis 5
1. The District Court’s RICO Ruling ....................... 6
2. The District Court’s Inequitable Conduct
Rulings ............ a ala acss acasinsnnneievananons 7
D. The Federal Circuit Proceedings ...............:ccceceseeeees 8
REASONS FOR GRANTING THE PETITION ................. 11
I. A Patent Is “Property” Within The Meaning Of
The Federal Mail Fraud Statute, 18 U.S.C. § 1341........ 14
A. Whether Property Is Fraudulently Acquired
As Opposed To Fraudulently Taken Is An
Astifeotel DemtOtBOOR oi icnisci cecevestscdotacsscecasoundesetosaess 16
B. The Character Of The Governmental Grant
Should Determine Whether It Is “Property”
Under The Mail Fraud Statute, 18 U.S.C. §
ROWE iceuciasissesitindovssaincinntitnipalioubcsighaiaamibimaaiamoniaihinsads 17
C. Fraudulently Inducing The Issuance Of A
Patent Can Violate The Mail Fraud Statute.............. 19
II. Patent Law Should Not Preempt New Jersey State
RP CRI ivenssicecnisscivenscieipipiin biiaigiaskicbadelasiaieibadiiicai 21
> Ill. “Convergence” Should Not Be A Required on
Element Of The Mail Fraud Statute ......0.......eeeeeeeeeee 29
CRA PASAY si csnsniinsonaseeiiniussastceatbiniteenieibngdasieameadinasumalinkanionae 29
iv
TABLE OF AUTHORITIES
Page(s)
Abbott Laboratories v. Brennan,
DOE Fale LR SE LIF vcssrenativiariscemitrninensin 10
Bonito Boats, Inc. v. Thunder Craft Boats, Inc.,
AONE as RARE CRD sedis ieiaicnsceipieentnnniinatensihiasnibbauncink 19
Borre v. United States,
DO Fda ee Fe hs BON) nspaiscicietaicortnichennetttianses 18
Cleveland v. United States,
ERO Gh GA PURO TNO) Khai AGL REE iit Giieewes 7
Consolidated Aluminum Corp. v. Foseco
International Ltd.,
910 F.2d $04 (Fed. Cir. 1990)............cccccscsscsosssscsesecsconees 6
Durland v. United States,
Ay eI Siiced tis sahiassiscacsnsssednenianniecnscecspnnndiioe 26
Hartford-Empire Co. v. United States,
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Hines v. Davidowitz,
BAe ath SAE PRED ih er piddidanicieleticiaelndasersdnneeeiamnses 25
Hunter Douglas, Inc. v. Harmonic Design, Inc.,
153 F.3d 1318 (Fed. Cir. 1998),
cert. denied, 525 U.S. 1143 (1999),
overruled in part on other grounds,
Midwest Industries, Inc. v. Karavan Trailers, Inc.,
175 F.3d 1356 (Fed. Cir. 1999) (en banc) ......... 21, 22, 23
McNally v. United States,
© 4B3. US. 350 19ST). cacsceisssecsssscnsniissecnssoenssnsensenssoenanersess 15
Mylan Laboratories, Inc. v. Akzo, N.V.,
770 F. Supp. 1053 (D. Md. 1991) ...........ceeeeseeeeeees 6, 28
Mylan Laboratories, Inc. v. Matkari, 2
7 F.3d 1130 C4Gs Cie. 1998 iv ci ici csccstcscsisicsdscctetesbevanes 17, 28
Neumann v. Vidal,
TIO F.2d S564. Cas 19GB) ccc viciincctismsdapickisssita 23
State v. Ball, :
632 A.2d 1222 (N.J. Super. Ct. App. Div. 1993),
Aff'd, 661 A.2d 251 (IN.J. 1995) ......csscsossroserssssessocesornees 23
Toulabi v. United States,
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United States v. Adler,
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United States v. Blumeyer,
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United States v. Bucuvalas,
FPO F.2G 937 CRG COR: TGS) iv si cvsevisinivibensclinteaiaaain 17
United States v. Christopher,
142 F.3d 46 (1st Cir.),
cert. denied, 525 U.S. 1054 (1998) wou... eeeeeseeeeeeeeee 27
United States v. Cooper,
132 F.3d 1400 (11th Cir. 1998),
cert. denied, 525 U.S. 1072 (1999) ...........seccccsssscscseseees 28
United States v. Cosentino,
SGP F268 SOU TIE Ge: TOG) scsi ccitindnsiinictrcticcssviincimcnce 28
United States v. Dadanian,
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United States v. DeFries,
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United States v. Evans,
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United States v. Granberry,
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United States v. Martinez,
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United States v. Murphy,
3 bf 4 Ae | BRR ener neha enneanon Cone 17
United States v. Novod,
923 F.2d 970,
rev'd in part on other grounds,
PE ae PE SED sisdicininictdoiicciseremncteniecs 19, 20
United States v. Salvatore,
RO ae Bae Ct COE EDIT) veiccccdncitntnciscnncrasacecresi 16, 17
United States v. Schwartz,
PE ee EE Ge BOE) soitissssncicessesnsciarsreternenees 18, 20
United States v. Shotts,
145 F.3d 1289 (11th Cir. 1998),
cert. denied, 525 U.S. 1177 (1999) ...........0.. salina 17
STATUTES
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28 U.S.C. § 1291 sae P RD ARE cchiihcdenatiens 9
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OTHER AUTHORITIES
Brief Amicus Curiae Of The Chamber Of Commerce
Of The United States In Support Of Neither Party,
Cleveland v. United States (filed in the Supreme
Court June 1, 2000) (No. 99-804) ....csccccssssesccssesssseeeeen 11
viii
Brief For The Petitioner, Cleveland v. United States
(filed in the Supreme Court June 1, 2000)
SE IN a cscedls Ce tition aseheerh cents hata onamactniocroctcxens 11
Petition For A Writ Of Certiorari To The United States
Court Of Appeals For The Fifth Circuit,
Cleveland v. United States (filed in the Supreme
Court November 8, 1999) (No. 99-804) ........essceseceeseeeee i
~
ix
In the Supreme Court of the Anited States
No. 00-_
SAMSUNG ELECTRONICS Co., LTD., SAMSUNG
ELECTRONICS AMERICA, INC., AND SAMSUNG
! SEMICONDUCTOR, INC.,
Petitioners,
V.
SEMICONDUCTOR ENERGY LABORATORY CoO., LTD.
ON PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE FEDERAL CIRCUIT
PETITION FOR A WRIT OF CERTIORARI
Petitioners Samsung Electronics Co., Ltd., Samsung
Electronics America, Inc., and Samsung Semiconductor, Inc.
(collectively “Samsung”) respectfully petition for a writ of
certiorari to review the judgment of the United States Court
of Appeals for the Federal Circuit as it relates to dismissing
Samsung’s federal RICO claims because the PTO was not
defrauded of “property” and dismissing Samsung’s New
Jersey RICO claims as preempted by federal patent law.
OPINIONS BELOW
The Federal Circuit’s opinion is reported at 204 F.3d
1368, and is reprinted in the Petitioner’s Appendix (“App.”)
at la-35a. The judgments, opinions, and orders of the United
States District Court for the Eastern District of Virginia that
<a.
are necessary to ascertain the grounds of the decision under
review are reprinted in the Appendix at 36a-1 16a.
JURISDICTION
The order of the Federal Circuit issued on March 2,
2000. App. 29a. Semiconductor Energy Laboratory Co.
(“SEL”) timely filed a combined motion for rehearing and
rehearing en banc. The court of appeals granted SEL’s
petition for rehearing for the limited purpose of amending its
March 2, 2000 opinion to correct a misstatement of fact on
March 29, 2000 and again on April 5, 2000. App. 30a, 32a.
The court of appeals denied the petition for rehearing en banc
on April 26, 2000. App. 34a. The Court has jurisdiction to
entertain the present petition under 28 U.S.C. § 1254(1).
STATUTORY PROVISIONS INVOLVED
This case implicates the federal statute prohibiting
filing false documents, 18 U.S.C. § 1001, the federal mail
fraud statute, 18 U.S.C. § 1341, and the federal Racketeer
Influenced and Corrupt Organization act, (“RICO”), 18
U.S.C. §§ 1961, 1962, and 1964 (App. 117a-124a). This
case also implicates the New Jersey statute prohibiting the
offering of a false instrument for filing, N.J. Stat. Ann. §
2C:21-3.b, and the New Jersey RICO act, N.J. Stat. Ann. §§
2C:41-1, 1.1, 2, 4, 6, 6.1 (App. 125a-134a).
STATEMENT OF THE CASE
A. SEL Sues Samsung For Patent
Infringement
On October 10, 1996, SEL filed a complaint alleging
that Samsung infringed three of SEL’s patents. Samsung
denied infringement and asserted a number of affirmative
defenses, including inequitable conduct, and counterclaimed
ao.
charging SEL with RICO, antitrust and unfair competition
claims.2 By stipulation, SEL amended its complaint to
remove with prejudice two of the three patents in suit, and
proceeded with U.S. Patent No. 5,543,636 (“the ’636 patent”)
as the only patent in suit.
B. Samsung’s Affirmative Defense of
Inequitable Conduct And The Scheme That
Formed The Basis of Samsung’s RICO
Counterclaims
In response to SEL’s claims of infringement, Samsung
raised the affirmative defense of inequitable conduct based
on SEL’s deliberate misrepresentations and omissions in the
‘patent application process. App. 140a ({ 24). Samsung
further alleged that SEL and its agents, in particular its patent
attorney, “combined and conspired to fraudulently obtain the
Patents-in-Suit.” App. 141a (¥ 29).
Samsung also counterclaimed for, among other things,
RICO violations under federal and New Jersey State? law. It
is these counterclaims which form the basis of this petition.
Samsung alleged that SEL and others had perpetrated a broad
scheme of fraud involving many misrepresentations which
2 The jurisdiction of the district court was invoked under 28 U.S.C. §
1338, as an action arising under the patent laws of the United States, 35
U.S.C. §§ 1 et seq. The jurisdiction of the district court over the federal
RICO claims was proper under 28 U.S.C. § 1331 and 18 U.S.C. §
1964(c). The jurisdiction of the district court over the New Jersey State
RICO claims was proper under 28 U.S.C. §§ 1332 and 1367(a).
3 The New Jersey RICO claims were brought only by Samsung
Electronics America, Inc., a New York corporation with its principal
place of business in New Jersey. App. 178a-179a (FJ 132-37).
eae
were made to obtain a number of different U.S. patents.
App. 38a.4 Samsung claimed that SEL had
... developed a plan to defraud, for obtaining money
or property by means of false or fraudulent pretenses,
or representations to representatives of the United
States Patent and Trademark Office (“PTO”) and
various manufacturers and sellers of active matrix
display devices,'5) including SEC, SEA and SSI
(collectively “Samsung”). The plan principally
consisted of procuring United States patents through
knowing and false filings and representations to the
PTO, followed by attempts to coerce multiple active
matrix display panel manufacturers and sellers to pay
for licenses on these invalid and unenforceable
patents.
App. 170a (4 109).
Samsung alleged that this scheme or artifice to defraud
was done “with the purpose of obtaining property from the
PTO and others by false pretenses,” that, at the time SEL was
obtaining its patents, Samsung was one of SEL’s intended
targets, App. 171a (§ 110), and that the plan was conceived
and executed “with the intent of obtaining patents from the
PTO and money from the targets,” App. 175a-176a (J 120).
4 Unlike some organizations which acquire patents on products they
make and manufacture, SEL is a research and development company that
exists primarily to apply for and license patents. Cf App. 45a. Its
organizational purpose makes clear that, when SEL makes knowing and
intentional misrepresentations to deceive the PTO into issuing patents, it
is doing so for the purpose of offensively asserting the wrongfully
acquired patent against others. A patent has no defensive value to SEL if
not used for extracting royalties or for litigation.
5 Commonly used as the screens in laptop computers.
fe Xe
As part of its state and federal RICO claims, Samsung
alleged the predicate act of mail fraud in violation of 18
U.S.C. § 1341.6 App. 177a (J 124). As part of its state
RICO claims, Samsung alleged the predicate act of offering
of a false instrument for filing in violation of New Jersey law
(N.J. Stat. Ann. § 2C:21-3.b), and 18 U.S.C. § 1001. Id.
c The District Court Proceedings Relevant
To This Petition
SEL moved for summary judgment on Samsung’s
inequitable conduct defense and on Samsung’s RICO,
antitrust, and unfair competition counterclaims. The district
court granted SEL’s motion on the RICO and antitrust
counterclaims. ~App. 36a, 105a. The case proceeded to a
bench trial at which the district court found that SEL
committed inequitable conduct, held the °636 patent
unenforceable, and dismissed SEL’s infringement suit
against Samsung with prejudice. App. 44a. SEL filed a
- motion to reconsider the district court’s finding of inequitable
conduct, which was denied. App. 88a. In response to the
motion for reconsideration the district court did, however,
issue an additional, supplemental opinion to correct
misstatements of fact. Jd. In doing so, the district court
found an independent and additional basis for the
unenforceability of the °636 patent, namely SEL’s
inequitable conduct in the prosecution of other, related
patents. App. 103a.? See generally, Consolidated
© Samsung also alleged violations of the federal wire fraud statute.
Because the mail and wire fraud statutes are to be construed in pari
materia, they will be referred to in this petition as mail fraud.
7 Subsequent to the Federal Circuit’s decision, which effectively
insulated SEL’s fraudulent scheme from resulting in affirmative liability
to SEL, SEL sued Samsung again based on patents closely related to one
of the patents it removed from this litigation. Semiconductor Energy
wm
Aluminum Corp. v. Foseco International Ltd., 910 F.2d 804
(Fed. Cir. 1990) (infectious unenforceability).
1. The District Court’s RICO Ruling
In granting summary judgment dismissing on
Samsung’s RICO claims, the district court (Cacheris, J.)
acknowledged that Samsung had alleged a broad scheme in
which SEL fraudulently acquired patents and then “sought
money from Samsung and others by threatening them with
litigation over these fraudulently obtained patents.” App.
38a. In essence, the claim was that “SEL defrauded the PTO,
but the intended, albeit indirect, victim of the fraud [was]
Samsung.” App. 38a-39a.
The district court was persuaded, however, that without
evidence of a direct fraud on Samsung,’ the key to
Samsung’s claims was whether a mail fraud offense could be
stated based on misrepresentations made to the PTO to
induce the issuance of a patent. App. 39a. The district court
likened the issuance of a patent to the issuance of a license.
App. 39a (citing Mylan Lab., Inc. v. Akzo, N.V., 770 F. Supp.
1053, 1071-73 (D. Md. 1991) (considering whether the FDA
could be defrauded into issuing ANDA approvals under the
Laboratory Co. Ltd. v. Samsung Electronics Co. Lid., Case No.
1:00CV00750 (D. D.C.) (filed April 7, 2000).
8 The district court rejected Samsung’s claim that it had been the direct
victim of mail or wire fraud, when it concluded that “Samsung provides
no evidence on which a jury could reasonably find [that Samsung had
been the victim of] the predicate acts necessary to sustain a RICO claim.”
App. 41a. While Samsung believes that it provided sufficient evidence to
withstand summary judgment on that point, Samsung does not contest
that issue here. Rather, Samsung challenges the district court’s and the
Federal Circuit’s implicit finding that Samsung cannot sustain a mail
fraud claim as the indirect but intended target of fraud through
misrepresentations directed at the PTO.
BP
mail or wire fraud statutes)). The court then concl; Jed that,
because “the PTO does not lose money or property when it
issues a patent,” SEL’s conduct before the PTO does not
.violate the federal mail fraud statute. App. 40a. The
analogous question of whether an unissued license is
property under the mail fraud statute is now before the Court
in Cleveland v. United States, 120 S. Ct. 1416 (No. 99-804)
(cert. granted March 20, 2000).
The district court also concluded that Samsung’s New
Jersey RICO claims failed because those state claims relied
on the same predicate act (mail fraud) that impaired the
federal claims, and further concluded that Samsung had
additionally failed to satisfy the essential “enterprise”
element of 18 U.S.C. § 1962(c). App. 41a.
2. The District Court’s Inequitable
Conduct Rulings
Following the rulings on dispositive motions, the
district court (Ellis, J.) conducted a seven-day bench trial on
Samsung’s affirmative defense of inequitable conduct based
on SEL’s intentional failure to disclose references material to
the patentability of the ’°636 patent and other patents, and the
submission of a deceptively misleading English translation of
a material Japanese prior art reference as well as other
misrepresentations. App. 44a. In holding SEL committed
inequitable conduct, the district court made numerous
findings of fact (undisturbed on appeal), which supported the
predicate acts of Samsung’s RICO allegations.
The district court concluded that, “{ijn the instant case,
a review of the record as a whole points clearly and
convincingly to the conclusion that SEL’s conduct before the
PTO with regard to the ’636 [patent] is sufficiently culpable
to warrant a finding of intent to deceive.” App. 80a.
3.
Moreover, the court found that the intent to deceive was
conceived as a cover-up, part of a larger plan or scheme
devised because SEL knew that one of its “potentially
lucrative patent[s] was vulnerable” to being held
unenforceable due to SEL’s inequitable conduct before the
PTO. App. 83a. Thus, SEL was found to have undertaken a
plan to “remedy this problem” by “pursu[ing] a new patent
on the same invention that would be immune from the same
problems that infected” the prior patents. Jd. Indeed, the
court concluded that:
The evidence demonstrates a sophisticated, subtle,
and consistent effort to hide the ball from the PTO in
a manner plainly at odds with an applicant’s duty of
candor, good faith, and honesty. The record, as a
whole, simply. contains too many instances of
information withheld, and references
mischaracterized, to reach any conclusion other than
that the withholding and mischaracterizations were
part of an intentional, not accidental or inadvertent,
plan to mislead the PTO.
App. 85a.
In rejecting reconsideration, the district court confirmed
that “[i}]n finding inequitable conduct, [it had] concluded that
SEL . . . deliberately attempted to conceal the true
significance of [cited references] to ensure the issuance of the
’636 patent.” App. 94a-95a. The district court also found an
independent and additional basis for the unenforceability of
the *636 patent, namely SEL’s inequitable conduct in the
prosecution of other, related patents. App. 103a.
D. The Federal Circuit Proceedings
SEL appealed the inequitable conduct judgment and
Samsung cross appealed the dismissal of its federal and state
se
RICO claims.? The Federal Circuit affirmed, but upheld the
district court’s rulings on Samsung’s RICO claims in part on
different grounds. App. 2a.
Like the district court, the Federal Circuit appreciated
the broad scheme of fraud that Samsung had alleged by
acknowledging that:
Samsung claims that this fraud resulted in the
improper issuance of the three originally asserted
patents, which SEL in turn has employed to extort
Samsung and others. Although Samsung concedes
that the direct fraud was perpetrated upon the PTO,
Samsung asserts that it was the indirect but intended
victim of this scheme.
App. 19a. Notwithstanding that allegation, the court of
appeals accepted the paradigm that, in order to satisfy the
mail fraud statute, the PTO must be deprived of “property”
when it issues a patent. App. 2la-22a. The court of appeals
rejected Samsung’s contentions that a patent is more than a
simple license, reasoning that, “[iJn this case, . . . the PTO
has not been defrauded of property. . . . [A]n application that
has not yet matured into a patent cannot properly be deemed
government property.” App. 21a-22a.
In short, Samsung has failed to satisfy the predicate
act requirement for its federal RICO counterclaims, as
SEL’s inequitable conduct did not “defraud” the
government of any “property” under either the federal
mail or wire fraud statutes. Consequently, we hold
9 The jurisdiction of the court of appeals was invoked under 28 U.S.C. §§
1291 and 1295(a){1) as an appeal from a final decision of a district court
of the United States disposing of all claims with respect to all parties,
including claims arising under the patent laws. ;
a
that the district court properly granted summary
judgment dismissing Samsung’s federal RICO
claims.
App. 22a.
After rejecting Samsung’s federal RICO claims, the
court of appeals also rejected Samsung’s state RICO claims.
Id. Rather than adopting the district court’s position that the
state claims could be dismissed on the same grounds as the
federal claims, the court of appeals held Samsung’s state law
RICO claims were preempted by the federal patent laws.
App. 25a. Ignoring the broad and pervasive scheme of fraud
proved in the inequitable conduct trial, the court of appeals
concluded that Samsung’s state law claim of filing a false
instrument alleged no more than simple bad faith conduct
before the PTO. App. 26a.
Clearly the Federal Circuit feared that, if it allowed
state RICO claims grounded in false filings “without more,”
then “every accused infringer asserting an inequitable
conduct defense would also bring such a RICO
counterclaim.” Jd. To avoid that result, the Federal Circuit
compared Samsung’s state RICO claims to the state law
claims it had previously held to be preempted in other cases.
App. 25a (citing Abbott Lab. v. Brennan, 952 F.2d 1346
(Fed. Cir. 1991) (state law claim of abuse of process
preempted)). The court then concluded that a “state cause of
action predicated so squarely on the acts of inequitable
conduct would be ‘contrary to Congress’ preemptive
regulation in the area of patent law.’” App. 26a. (quoting
Brennan, 952 F.2d at 1357).
As the district court’s reconsideration opinion
established, however, this was no ordinary inequitable
conduct case. Ignoring the proven scheme of multiple acts of
St.
misconduct related to multiple patent applications, and the
clear additional elements required to prove liability under
Samsung’s state RICO claims, the Federal Circuit
peremptorily (and wrongly) concluded that both the predicate
act and the state RICO claim brought by Samsung alleged no
elements in addition to those needed to prove an inequitable
conduct defense. App. 26a.
Samsung now petitions for a writ of certiorari to that
portion of the Federal Circuit’s opinion which rejects
Samsung’s federal and state RICO claims.
REASONS FOR GRANTING THE PETITION
There is a split among the circuits on whether unissued
governmental grants such as licenses and franchises are
“property” within the meaning of the mail fraud statute. The
Court has recognized that split, and the license issue is
presently before the Court in Cleveland v. United States.'°
The corollary issue of whether an unissued patent is
“property,” as decided by the Federal Circuit in this case, has
been recognized by both the petitioner and an amicus in
Cleveland to be a related and important question.!! Samsung
respectfully suggests that the issues presented in Cleveland
and in this case are complementary and should be taken up
by the Court, preferably together. The court of appeals erred
10 See supra n. 1.
!! Brief for the Petitioner, at 12, 15, 21-22, Cleveland v. United States
(filed in the Supreme Court June 1, 2000) (No. 99-804); Brief of the
Chamber of Commerce of the United States as Amicus Curiae in Support
of Neither Party, at 20-22, Cleveland v. United States (filed in the
Supreme Court June 1, 2000) (No. 99-804) (“under the Government’s
theory of the mail fraud statute in this case, Samsung was apparently
wrongly decided, and RICO liability for inequitable conduct before the
PTO should obtain”).
a
in this case, by simply equating the property rights involved
in the issuance of any license with those affected by the grant
of a patent. Unlike the issuance of a license, which can be a
mere ministerial act, the grant of a patent requires more.
With a patent, the government expends considerable
resources and enters into a bargained-for exchange in which
consideration flows from both sides. The scope of the
government’s property rights in an unissued patent may not
be fully resolved by Cleveland and_ simultaneous
consideration of the patent issue together with the license
issue will provide an important dimension to, and a broader
contextual framework for, the question already before the
Court.
The Federal Circuit’s preemption ruling violates
preemption precedent which had properly struck the
necessary balance between federal supremacy and state
sovereignty. The Federal Circuit’s ruling, which incorrectly
assumed the Samsung’s state law RICO claims allege no
additional elements beyond those required to prove
inequitable conduct, ignores the multiple acts of misconduct
established in this case and the additional elements unrelated
to inequitable conduct required to prove RICO offenses in
general. Moreover, the Federal Circuit’s superficial
preemption analysis guts the states’ right to safeguard the
public by preventing pervasive schemes of fraud and
providing civil remedies for those who have been victims of
fraudulent schemes.
By affirming the dismissal of Samsung’s federal RICO
claims based on perceived flaws in Samsung’s alleged
predicate acts, the Federal Circuit implicitly adopted a rule
requiring “convergence” in mail fraud, i.e., that the target of
the misrepresentation must be the victim of the fraud. Most
circuits agree such convergence is not required. However,
the Fourth Circuit, the Second Circuit (and now the Federal
é§3-.
Circuit) disagree. The mail fraud statute is used with great
frequency in both criminal and civil proceedings across the
United States and it should be uniformly interpreted as to the
requirement of convergence. Indeed, conduct which is
actionable under the mail fraud statute in one jurisdiction,
will not be in another. The Court should resolve whether
convergence is a required element of mail fraud and
eliminate the present split among the circuit courts.
For the reasons set forth herein, Samsung’s petition
should be granted and the Federal Circuit’s rulings that
Samsung failed to present either federal or state law RICO
claims should be reversed.
I. | APATENT IS “PROPERTY” WITHIN THE
MEANING OF THE FEDERAL MAIL
FRAUD STATUTE, 18 U.S.C. § 1341
The Federal Circuit’s rejection of Samsung’s RICO
claims was sweeping, and completely forecloses the
availability of RICO remedies to those involved in patent
lawsuits. The court of appeals erroneously focused its
analysis of Samsung’s mail fraud claims on the nature of the
property interests of the recipient of the misrepresentation —
the PTO. The court ruled that the PTO could not be
defrauded of money or property within the meaning of the
mail fraud statute, because a patent was not “property” in the
hands of the government prior to issuance. App. 22a. In
justifying that result, the Federal Circuit likened the federal
government’s interest in issuing a patent to a state
government’s interest in issuing a license, a question which
has been considered and which has split its sister circuits.
See infra, part I. B.
The Federal Circuit made three key errors in its
“unissued patents are not property” analysis. First, it
-14-
artificially focused the mail fraud inquiry on whether
property was taken from one entity rather than fraudulently
acquired by another. As the Third and Fifth Circuits have
persuasively explained, such an analysis elevates form over
substance in the interpretation of an act designed to offer
broad protection against fraudulent schemes.
Second, the Federal Circuit ignored the breadth and
complexity of the issues encompassed by the circuit split on
unissued licenses, and therefore wrongly analogized the
federal government’s interest in issuing patents to a state
government’s interest in issuing licenses. It is error to group
all licenses, franchises, patents, or permits in a single
analytical category. Governmental rights implicated by the
issuance of permits can be significantly different from those
arising from licenses or franchises. A state’s interest in a
license issued for purely regulatory purposes as a mere
ministerial act (e.g., a dog license) is not the same as its
interest in a license which affects public safety (e.g., medical
licenses), manages a finite public resource (e.g., mineral
license), or delivers an income interest to the government in
the proceeds of the activity conducted under the license (e.g.,
video poker license). The “character” of the interest should
control the analysis of whether its fraudulent acquisition falls
within the ambit of the mail fraud statute.
Despite some similarities between an unissued permit
or license and an unissued patent for purpose of the mail
fraud statute, the patent question is significantly more
complex and cannot be adequately resolved through simple
analogy to licenses. In doing so, the Federal Circuit ignored
the wealth of its own, and this Court’s, well reasoned
opinions which show that, during the patent application
process, the government has a direct and concrete right
(albeit intangible) in a yet-to-be-issued patent. When a
$<
patent is procured through fraud on the PTO, the government
is wrongfully deprived of that right.
A. Whether Property Is Fraudulently Acquired
As Opposed To Fraudulently Taken Is An
Artificial Distinction
The Federal Circuit’s ruling on Samsung’s RICO
claims turned on whether a patent is property in the hands of
the government prior to issuance. But that question
mistakenly focuses the inquiry on whether property has been
fraudulently lost — rather than fraudulently acquired. This
artificial distinction has been rejected by the Fifth and Third
Circuits.
In United States v. Martinez, 905 F.2d 709, 713 (3d Cir.
1990), a case considering the validity of a mail fraud
conviction for the fraudulent acquisition of a medical license,
the Third Circuit began its analysis by observing that a
medical license unquestionably was property under state law
(as indeed are patents), and was thus not a simple intangible
right ineligible for protection against mail fraud under
McNally v. United States, 483 U.S. 350 (1987). The court
then rejected the artificial distinction between a fraudulent
taking and a fraudulent acquisition:
The statute, which proscribes “obtaining money or
property,” is broad enough to cover a scheme to
defraud a victim of something that takes on value
only in the hands of the acquirer as well as a scheme
to defraud a victim of property valuable to the victim
but valueless to the acquirer.
905 F.2d at 713. The court also rejected the contention that
the government, in a case like this, acts merely as a regulator
— granting simply a promise not to interfere. Instead, “the
government’s interest here is . . . that of the dispenser of
-16-
valuable property in which the licensee has constitutionally
protected property interests and which the government may
enjoin upon misuse.” /d. at 715. The Third Circuit rejected
“artificial constructs and fleeting distinctions” and read the
mail fraud statute as “broadly protecting property interests,
and [which] purpose is served in protecting the
Commonwealth’s interests as the holder of valuable medical
licenses from fraudulent conduct depriving it of such
property.” Jd.
The Fifth Circuit agreed with Martinez in United States
v. Salvatore, 110 F.3d 1131 (5™ Cir. 1997) (upholding mail
fraud convictions for fraud in an application for video poker
licenses),!2 likewise rejecting the artificial distinction
between property acquired and property taken. In addition,
the Fifth Circuit recognized that the broad interpretation
given to property under the mail fraud statute!3 extended to
the “right to control,” an incident of property exercised by
_the government upon the issuance of a license. Jd. at 1140
(“the right to use and dispose of an object is the right to
control that object — and in the case of licenses, the right to
control their issuance”’).
12 Salvatore is the leading Fifth Circuit case on unissued licenses as
property and is the precedent on review in Cleveland v. United States
which is presently before the Court. See supra n.1.
13 A broad definition of property for purposes of the mail fraud statute
has been acknowledged by other circuits, notwithstanding their
disagreement on the “unissued license” question. The Fourth Circuit has
acknowledged “the common sense notion that property is anything in
which one has a right that could be assigned, traded, bought, and
otherwise disposed of.” United States v. Adler, 186 F.3d 574, 576 (4
Cir. 1999) (internal quotation omitted) (analogizing the mail fraud statute
to the bank fraud statute, but holding alleged victim of wire fraud did not,
as a creditor, have property right in any particular fund). That broad
definition of property is appropriate in the application of the mail fraud
statute in this case.
=
The Federal Circuit has already admitted, as indeed it
must, that a patent is property in the hands of the patentee.
App. 22a. Its artificial focus in this case on the distinction
between a patent not being property in the hands of the
government versus being property when issued to patentee
should be rejected for purposes of the fraud statute.
B. The Character Of The Governmental Grant
Should Determine Whether It Is “Property”
Under The Mail Fraud Statute, 18 U.S.C. §
1341
The Federal Circuit next erred when it analogized
unissued patents to unissued licenses and assumed that all
governmental grants should be treated uniformly.
The circuits are split on whether an unissued license is
property of the government subject to the mail fraud statute.
Some circuits have held that licenses are property for
purposes of the mail fraud statute. See, e.g., United States v.
Martinez, 905 F.2d 709, 713 (3d Cir. 1990) (medical
licenses), United States v. Salvatore, 110 F.3d 1131, 1143
(5" Cir. 1997) (video poker licenses); United States v.
Bucuvalas, 970 F.2d 937, 945 (1° Cir. 1992) (liquor
licenses).
Other circuits have reached the opposite result. See,
e.g., Toulabi v. United States, 875 F.2d 122, 125 (7" Cir.
1989) (taxicab licenses); United States v. Murphy, 836 F.2d
248, 253-54 (6" Cir. 1988) (charitable bingo license); United
States v. Dadanian, 856 F.2d 1391, 1392 (9" Cir. 1988)
(gambling licenses); United States v. Shotts, 145 F.3d 1289,
1296 (11 Cir. 1998) (bail bond license), cert. denied, 525
U.S. 1177 (1999); United States v. Granberry, 908 F.2d 278,
280 (8 Cir. 1990) (school bus operator’s permit); Mylan
Lab., Inc. v. Matkari, 7 F.3d 1130, 1137 (4" Cir. 1993) (FDA-
if.
approval); United States v. Schwartz, 924 F.2d 410, 417 (2d
Cir. 1991) (export licenses).
Whether expressly acknowledged by the circuits or not,
the real question in these cases is the one the Fifth Circuit
identified — “a state’s property interest in its licenses derives
at least in part from the character of the licenses themselves.”
Salvatore, 110 F.3d at 1141. It is thus critical to investigate
the nature of the particular license or grant at issue. The
license at issue in Salvatore was considered unique because
of the income interest the state took in the proceeds of the
licensee’s activities. Jd. Likewise, when the license or right
conferred by the government is a franchise (a right that
belongs to the government when conferred upon a citizen and
a right that inheres in the sovereign power), its grant due to
the applicant’s fraud has been properly held subject to the
mail fraud statute. Borre v. United States, 940 F.2d 215, 220
(7" Cir. 1991).
However, unissued licenses are not all the same. A
government’s interest in a license issued for purely
regulatory purposes or that is issued as a mere ministerial act
might not be the same as its interest in a license that, for
example, affects public safety, the government’s
management of a public resource, or the government’s
income interest in the proceeds of the activity conducted
under the license. When heightened property interests in the
state are invoked, like income interests and franchises, they
more easily satisfy the purposes of and hence should be
subject to the mail fraud statute. This principle applies with
even greater force to the important and unique area of patent
rights.
-19-
C. Fraudulently Inducing The Issuance Of A
Patent Can Violate The Mail Fraud Statute
A patent embodies property rights. Hartford-Empire
Co. v. United States, 323 U.S. 386, 415 (1945) (“That a
patent is property, protected against appropriation both by
individuals and by government, has long been settled.”’”). The
Federal Circuit agrees. App. 22a. When those rights come
into existence, and who holds those rights, are at issue here.
The Federal Circuit’s ruling could only have been reached by
ignoring the unique “character” of patents and the unique
attributes of the patent application process.
An inventor has a choice. He can keep and hold his
invention as a trade secret, or he can reveal his work to the
world. “Once an inventor has decided to lift the veil of
secrecy from his work, he must choose the protection of a
federal patent or the dedication of his idea to the public at
large.” Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489
U.S. 141, 149 (1989). If the inventor chooses to seek the
protection of the federal patent system, he enters into a
“carefully crafted bargain for encouraging the creation and
disclosure of new, useful, and nonobvious advances in
technology and design in return for the exclusive right to
practice the invention for a period of years.” Jd. at 150-51.
The patent application process is thus a bargained-for
exchange in which consideration flows in both directions.
Indeed, in order to issue a patent, “the public has paid the
congressionally mandated price for [the future] disclosure.”
Id. at 152. One panel of the Second Circuit has commented
that property rights arise in the government in just such a
situation. In United States v. Novod, 923 F.2d 970, rev’d in
part on other grounds, 927 F.2d 726 (2d Cir. 1991), a case
considering the nature of the government’s property interest
in a fraudulently acquired permit, the panel recognized that
«2D.
property rights arise when an applicant petitions the
government for a permit:
Without the agency’s assent, the permit remains with
the agency. The [application] process is tantamount
to a contractual transaction where a buyer and seller
agree on a mutually satisfactory exchange of
consideration. ... The bargained-for exchange, in
essence, would have been permit for promise. Thus
construed, the permit constitutes property within the
reach of the fraud statutes.
Id. at 974.'4
Moreover, the government’s process for issuing a
patent requires far more than a mere ministerial effort.
Enormous resources are dedicated to ascertaining the validity
of an application. This time, effort and expense, are
additional reasons to recognize the government’s property
interest in a patent. Cf United States v. DeFries, 43 F.3d
707, 711 (D.C. Cir. 1995) (commenting that value of
property to its owner might be shown by the substantial
commitment of resources to its creation).
The “price” the government pays for entering into the
patent bargain includes, for example, investing time and
resources in examining the application, granting a right of
exclusion in exchange for the ultimate release of information,
and subjecting itself to suit for infringement. See 28 U.S.C. §
1498. The government’s interest when issuing a patent is
14 Notwithstanding the reasoning set forth so persuasively by the panel in
Novod and its disagreement with the precedent in the Second Circuit, the
panel was obligated to follow the precedent of its Circuit set out in United
States v. Schwartz, 924 F.2d 410 (2d Cir. 1991), and therefore reversed
the mail fraud conviction at issue. United States v. Novod, 923 F.2d 970,
972, rev'd in part on other grounds, 927 F.2d 726 (2d Cir. 1991).
- 2} -
more than simply regulatory. It results from an exchange of
consideration between the government and the patentee. If
the federal government is fraudulently induced to enter into
and complete the terms of its bargain, it has been defrauded
of property for purposes of mail fraud.
Il. PATENT LAW SHOULD NOT PREEMPT
NEW JERSEY STATE RICO CLAIMS
To foreclose all state law RICO claims related to patent
lawsuits, and especially to avoid the reach of the New Jersey
RICO act (which offers great flexibility for pleading and
proof requirements of the enterprise and person elements of
RICO), the Federal Circuit cursorily dismissed Samsung’s
state law RICO counterclaims as preempted by federal patent
law. App. 25a.
The Federal Circuit has rejected field preemption when
there is a substantial difference between the fields which the
state and federal patent laws regulate. Hunter Douglas, Inc.
v. Harmonic Design, Inc., 153 F.3d 1318, 1335 (Fed. Cir.
1998) (rejecting field preemption by patent laws of state laws
designed to regulate business affairs), overruled in part on
other grounds, Midwest Indus., Inc. v. Karavan Trailers,
Inc., 175 F.3d 1356 (Fed. Cir. 1999) (en banc). “A state law
is not per se preempted unless every fact situation that would
satisfy the state law is in conflict with federal law.” Jd.
Indeed, the Federal Circuit has recognized that “[b]y limiting
the extent of preemption to those instances when the
application of state law would conflict with federal law, this
approach best respects the states’ sovereign nature.” Jd. Yet,
despite its stated preference for conflict preemption, the
Federal Circuit’s decision here effectively preempts the
entire field of state law RICO claims as they might relate to
patents, and does so in a case where the proven facts
2.
establish an organized scheme of fraud far exceeding a
typical inequitable conduct case.
The Federal Circuit wrongly characterized Samsung as
having alleged and proven no more than bad faith conduct
before the PTO in a single application or instance. App. 26a.
On that basis, the Federal Circuit declared that, as applied by
Samsung, the New Jersey RICO act “does not contain as
necessary elements of the offense the sorts of acts beyond
misrepresentations or willful omissions to the PTO.” /d.
The court concluded that, “[t]o satisfy the predicate act
requirement (and indeed all requirements) of the state RICO
statute, Samsung alleges only the act of filing a false
statement.” Jd.
Proof of a RICO violation under New Jersey law
clearly requires proof of a number of elements in addition to
simple bad faith conduct before the PTO. See, e.g., N.J. Stat.
Ann. § 2C:41- 2 (e.g., prohibiting engagement in a pattern of
racketeering activity), App. 130a. Moreover, while filing a
false instrument alone might amount to bad faith conduct
before the PTO, much more was alleged and proven here.
App. 85a. As the Federal Circuit itself has previously held,
as long as the element of bad faith is shown and the
additional elements of proof are met, it is of no moment that
the state law offense could be proven without bad faith:
Of course, neither fraud nor bad faith need be a
required element of a state law tort for that cause of
action to stave off preemption by federal patent law,
because a plaintiff could prove fraud or bad faith for a
tort that not only would be met by such a showing of
proof, but also would be satisfied by less. Although
to state and maintain a claim under a state law tort, a
plaintiff may not be required to allege or prove that
the patentholder perpetrated fraud before the PTO or
eo
acted in bad faith in the marketplace, to escape
preemption, the plaintiff would need to allege and
prove ultimately such conduct.
Hunter Douglas, 153 F.3d at 1336-37. The Federal Circuit
was wrong to reject Samsung’s predicate offense by
suggesting it simply mirrored the conduct needed to establish
an ordinary inequitable conduct defense in a patent case. As
pled and proven, Samsung showed extreme and outrageous
conduct on the part of SEL which exceeded ordinary
inequitable conduct and could easily satisfy the additional
elements of RICO. App. 85a.!5
Moreover, the Federal Circuit’s emphasis on the
predicate act was wrong. There can be no doubt that the
gravamen of the RICO violation is “not the commission of
the underlying predicate act, but rather the participation in an
enterprise that engages in a pattern of racketeering activity.”
State v. Ball, 632 A.2d 1222, 1262 (N.J. Super. Ct. App. Div.
1993), aff'd, 661 A.2d 251 (N.J. 1995). The unusual
circumstance here of a patent holding company that has
engaged in an ongoing scheme to fraudulently obtain patents
for the purpose of extorting money from industry is the type
of situation where RICO should be applied to protect both
the targets of the scheme as well as the public which
ultimately suffers from higher prices and more limited
availability of products.
15 Cf Neumann v. Vidal, 710 F.2d 856, 860 (D.C. Cir. 1983) (not directly
addressing preemption, but allowing a state law abuse of process claim
based on filing before the PTO where such filing was designed to
accomplish some end the “process” was not intended to accomplish). It
cannot in good faith be argued here that the patent application process
was intended to sanction or to provide exclusive remedies for SEL’s
conduct in this case.
- 24.
To support its reasoning, the Federal Circuit
additionally commented that it would reject attempts “to
contort the elements of inequitable conduct to satisfy the
New Jersey RICO statute, with its stated purpose of
combating organized crime.” App. 27a. But, New Jersey
RICO does not focus exclusively on organized crime
activities. Like the federal RICO act, New Jersey RICO is
directed at “organized crime and similar activities . . . that
drain{} millions of dollars from [New Jersey’s] economy by
unlawful conduct and the illegal use of force, fraud and
corruption.” N.J. Stat. Ann. § 2C:41-1.1.b (declaration of
policy and legislative findings), App. 129a. Thus, there are
no prudential considerations militating against applying the
New Jersey RICO act in this case.
Finally, the Federal Circuit acknowledged, but gave no
weight to Samsung’s argument that it had no adequate
remedy for the conduct at issue unless it was allowed to
pursue its RICO claims. App. 24a. Before the Federal
Circuit, Samsung cited its design-around costs, loss of
goodwill, and legal costs as being unrecoverable under the
patent laws, even when it prevailed on its inequitable conduct
defense. App. 19a, 24a. Since the Federal Circuit’s decision,
Samsung’s argument has gained more force. Having been
released of any potential RICO liability for its fraudulent
scheme, SEL has again sued Samsung, alleging that the same
products involved in this case infringe on a patent closely
related to the 636 patent.!©
In the absence of an affirmative remedy for this
continued scheme of fraud, Samsung will be forced to
address each of SEL’s fraudulently acquired patents, one by
one, rather than addressing the pervasive scheme of
fraudulent conduct perpetrated by SEL as the single, unitary
16 Semiconductor Energy Laboratory Co. Ltd. v. Samsung Electronics
Co. Lid., Case No. 1:00CV00750 (D. D.C.) (filed April 7, 2000).
-25-
scheme that it is. Moreover, the remedy for inequitable
conduct is only that the patent is declared unenforceable (and
possibly a defendant may recover attorneys’ fees), Samsung
is not compensated for its damages; civil RICO exists so that
a plaintiff can recover those losses in appropriate cases like
this one.
This Court has explained that a state law is preempted
only when it “stands as an obstacle to the accomplishment
and execution of the full purposes and objectives of
Congress.” Hines v. Davidowitz, 312 U.S. 52, 67 (1941).
Preemption is particularly unwarranted in this case because
nothing in the pursuit of a RICO violation stands as an
obstacle to the federal patent laws or to the judicially-created
defense of inequitable conduct. The federal patent laws were
not designed to remedy the kind of conduct at issue in this
case — a sophisticated and subtle scheme to defraud — nor are
the federal patent laws undermined by pursuit of an
independent remedy which is specifically designed to deal
with this kind of fraud.
Resolution of whether an orchestrated scheme of
misrepresentations made in patent applications, made under
the circumstances alleged and proven in this case, can
support a mail fraud predicate act to a RICO violation is
important. Hundreds of thousands of patent applications are
made each year, and the patent application process depends
on the candor and utmost good faith of patent applicants.
App. 7a. In most cases, violations of that duty will be
handled by the inequitable conduct defense. But, if a patent
applicant undertakes the egregious conduct shown in this
case and the remedies available under the patent laws cannot
make the victims of the scheme whole, the victims should be
allowed to pursue RICO claims. The federal law of
preemption should not be used to hold otherwise.
-2%6-
Iii, “CONVERGENCE” SHOULD NOT BE A
REQUIRED ELEMENT OF THE MAIL
FRAUD STATUTE
When the Federal Circuit disposed of Samsung’s RICO
claims solely on the basis of the government’s interest in a
patent prior to issuance, it was implicitly holding that a mail
fraud claim could not be stated when misrepresentations are
directed to one entity in order to target another entity as the
victim of the fraud.!7 In so ruling, the court rejected the
reasoning of a majority of circuits and engrafted elements
onto the mail fraud offense that are neither expressly nor
impliedly part of the statute and which are contrary to the
plain language which permits prosecution of broad
“schemes” of fraud.
As early as 1896 this Court considered the reach of the
federal mail fraud statute in Durland v. United States and
directed that it be construed to effectuate its purpose of
“protecting the public against all . . . intentional efforts to
despoil.” 161 U.S. 306, 314 (1896) (considering whether
false representations regarding future conduct fall within the
ambit of the mail fraud statute). Indeed, the Court
recognized that the key to determining the reach of the mail
fraud statute is “the evil sought to be remedied” and directed
that the statute should not be construed so narrowly as to
“strip it of value.” Jd. at 313, 314.
Following the rationale that the mail fraud statute
should be interpreted broadly to effectuate its purposes, a
majority of circuits have rejected the notion of convergence.
For example, the First Circuit expressly considered the
17 As discussed previously, Samsung alleged a broad and disseminated
scheme of fraud which directed misrepresentations to the PTO for the
purpose of defrauding the PTO, Samsung and others.
2] -
question of convergence in United States v. Christopher, 142
F.3d 46 (1" Cir.), cert. denied, 525 U.S. 1054 (1998). The
case involved false statements made to insurance regulators
to obtain approval to perform certain transactions which then
enabled the defendants to deprive insurance companies of
property and to place policyholders in jeopardy. Jd. at 54.
The court upheld the defendant’s mail fraud conviction, even
though the misrepresentations were not directed at the
victims of the fraud.
Nothing in the mail and wire fraud statutes requires
that the party deprived of money or property be the
same party who is actually deceived. The phrase
‘scheme or artifice ... for obtaining money or property
by means of false or fraudulent pretenses,
representations, or promises,’ 18 U.S.C. § 1341, is
broad enough to include a wide variety of deceptions
intended to deprive another of money or property.
Id. Indeed, the court recognized that when the role of a
government regulator is “to protect the monetary interests of
others, a scheme to mislead the regulator in order to get at the
protected funds will affect ‘property rights.”” Jd.
Other circuits have adopted a similar rationale. See,
e.g., United States v. Blumeyer, 114 F.3d 758, 766-67 (8"
Cir. 1997) (a defendant who makes false representations to a
regulatory agency in order to acquire a Certificate of
Authority to operate an insurance agency which then causes
harm to policyholders and others is guilty of mail fraud),!®
18 The Eighth Circuit reached this result, notwithstanding its conclusion
that obtaining a certificate/license by fraud might not, by itself, constitute
fraud. United States v. Blumeyer, 114 F.3d 758, 767 (8" Cir. 1997). The
court concluded that using the fraudulently acquired certificate to injure
others would fall within the ambit of the mail fraud statute. /d. at 767-68;
see also, United States v. Granberry, 908 F.2d 278, 280 (8 Cir. 1990)
- 28 -
United States v. Cooper, 132 F.3d 1400, 1405 (11™ Cir.
1998) (upholding conviction based on deception of insurance
regulators that harmed policyholders), cert. denied, 525 U.S.
1072 (1999); United States v. Cosentino, 869 F.2d 301, 307
(7" Cir. 1989) (mail fraud conviction upheld where
misrepresentations to department of insurance permitted an
agency to remain in business and thereby cause loss of
money or property to victims).
Indeed, only the Fourth, Second Circuit (and now the
Federal Circuit) have reached contrary results. See Mylan
Lab., Inc. v. Akzo, N.V., 770 F. Supp. 1053, 1074 (D. Md.
1991) (“the person allegedly deceived by the
misrepresentations [must] be the person injured by the
misrepresentations”);'9 and United States v. Evans, 844 F.2d
36, 39-40 (2d Cir. 1988) (noting in dictum that party
deceived must lose money or property).
The most effective schemes of fraud will often be the
most disseminated — it is far harder to identify and protect
against frauds when the misrepresentations are directed at
one entity and the results of the fraud are intended to be, and
are, felt by another. If the Court allows the minority view’s
requirement of convergence to stand, it will send a message
to perpetrators of fraud that, as long as they make their
(use of fraudulently acquired bus drivers’ license to defraud school out of
money or property upheld, but conviction that state was defrauded into
issuance not upheld).
19 The Fourth Circuit commented on this holding in a related case and
apparently affirmed the requirement of convergence when it said “we
affirm a ruling that precludes Mylan from relying on, as its sole basis for
the predicate acts in its RICO counts, the theory that the FDA was
defrauded out of its ANDA approvals within the meaning of the mail and
wire fraud statutes.” Mylan Lab., Inc. v. Matkari, 7 F.3d 1130,1137 (4"
Cir. 1993).
- 29.
misrepresentations far enough away from the true and
intended targets of their fraud, they will be safe from
prosecution. Such a result is neither expressly nor impliedly
warranted under the language of the mail fraud statute and
should not be the law.
CONCLUSION
For each of the above reasons, Samsung’s petition for
writ of certiorari should be granted.
Respectfully submitted,
RICHARD L. STANLEY DAVID J. HEALEY
HOWREY SIMON ARNOLD Counsel of Record
& WHITE, LLP GARY F. FISCHMAN
750 Bering Drive LisA S. MCCALMONT
Houston, Texas 77057 GOLDSTEIN & HEALEY L.L.P.
(713) 787-1400 1177 West Loop South, 10" Floor
Houston, Texas 77027
CECILIA H. GONZALEZ (713) 877-1515
HOWREY SIMON ARNOLD
& WHITE, LLP Attorneys for Petitioners
1299 Pennsylvania Avenue, N.W. Samsung Electronics, Co., Lid., et
Washington, D.C. 20004 al.
(202) 783-0800
JULY 25, 2000
APPENDIX
APPENDIX TABLE OF CONTENTS
Semiconductor Energy Laboratory Co. v.
Samsung Electronics Co. Lid., 204 F.3d 1368
(Fed. Cir. 2000)
Federal Circuit Judgment filed March 2, 2000
and issued as a mandate March 4, 2000
Federal Circuit Order filed March 29, 2000
granting SEL’s petition for rehearing to amend
the March 2, 2000 opinion
Federal Circuit Order (corrected) filed April 5,
2000 granting SEL’s petition for rehearing to
amend the March 2, 2000 opinion
Federal Circuit Order filed April 26, 2000
denying SEL’s petition for rehearing en banc
District Court Memorandum Opinion granting
SEL’s motion for summary judgment on federal
and N.J. RICO counterclaims, Semiconductor
Energy Laboratory Co. v. Samsung Electronics
Co. Lid., 4 F. Supp. 2d 473 (E.D. Va. 1998)
District Court Memorandum Opinion holding
SEL’s patent unenforceable and dismissing the
complaint, Semiconductor Energy Laboratory
Co. v. Samsung Electronics Co. Ltd., 4 F. Supp.
2d 477 (E.D. Va. 1998)
District Court Memorandum Opinion denying
SEL’s motion to reconsider patent
unenforceability ruling, Semiconductor Energy
Laboratory Co. v. Samsung Electronics Co.
Lid., 24 F. Supp. 2d 537 (E.D. Va. 1998)
I. District Court Memorandum Opinion on
antitrust and unfair competition defenses,
Semiconductor Energy Laboratory Co. v.
Samsung Electronics Co. Ltd., No. 96-1460-A,
CDERIO: BR, SDI vicesiecitdpecisninesassnncncnandeniainabaiantens 105a
J. Federal Statutes Involve .............cccccccssscscsescsesoorees 117a
K. New Jersey Statutes Involved.................:0008 saicnetian 125a
L. Samsung Electronics, Co. Ltd. et al. Second
Amended Answer and Counterclaims.................+.- 135a
la
APPENDIX A
United States Court Of Appeals
For The Federal Circuit
Nos. 98-1377, 99-1103
SEMICONDUCTOR ENERGY
LABORATORY CO., LTD.,
Plaintiff-Appellant,
Vv.
SAMSUNG ELECTRONICS CoO., LTD.,
SAMSUNG ELECTRONICS AMERICA, INC., AND
SAMSUNG SEMICONDUCTOR, INC.,
Defendants-Cross Appellants.
Decided: March 2, 2000.
Before MICHEL, Circuit Judge, SKELTON, Senior Circuit
Judge, and SCHALL, Circuit Judge.
MICHEL, Circuit Judge.
On October -10, 1996, Semiconductor Energy
Laboratory Co., Ltd. (“SEL”) sued Samsung Electronics Co.,
Ltd., Samsung Electronics America, Inc., and Samsung
- Semiconductor, Inc. (collectively “Samsung”) in the United
States District Court for the Eastern District of Virginia,
alleging that Samsung’s production and sales of active matrix
displays infringed SEL’s U.S. Patent No. 5,543,636 (“the
‘636 patent”) directed to semiconductor technology. The
district court first granted SEL’s motion for summary
judgment dismissing Samsung’s federal and New Jersey
Racketeer Influenced and Corrupt Organizations (“RICO”)
a Se Oe
2a
counterclaims. See SEL v. Samsung, 4 F. Supp. 2d 473 (E.D.
Va. 1998) (“SEL /”). After a seven-day bench trial, the
district court also held the ‘636 patent to be unenforceable for
SEL’s inequitable conduct before the Patent and Trademark
Office (“PTO”). See SEL v. Samsung, 4 F. Supp. 2d 477
(E.D.Va.1998) (“SEL 2”); SEL v. Samsung, 24 F. Supp. 2d
537 (E.D.Va.1998) (“SEL 3”). Both parties appeal. Because
we are not persuaded that the district court either abused its
discretion in holding the ‘636 patent unenforceable for
inequitable conduct or improperly dismissed Samsung’s
federal and New Jersey RICO counterclaims, we affirm.
BACKGROUND
SEL is a Japanese company specializing in the
research and development of semiconductor technology.
SEL engages in no manufacturing and supports its research
efforts from revenues from patent licensing. Since 1980,
SEL has filed over 5,000 patent applications worldwide and
has been awarded approximately 1,500 U.S. and foreign
patents. Dr. Shunpei Yamazaki, a solid state physicist and
the president and majority shareholder of SEL, is the named
inventor or co-inventor on most of SEL’s patents, including
the ‘636 patent.
Entitled “Insulated Gate Field Effect Transistor”
(“IGFET”), the ‘636 patent claims a non-single crystal
silicon thin film transistor (“TFT”), a type of IGFET. Such
TFTs can be used to switch the pixels in an active matrix
display unit on or off. The TFT includes a source, a drain, a
silicon nitride gate insulator, an insulated substrate, and an
intrinsic amorphous silicon channel region. The channel
region is “sandwiched” between the gate insulator and the
insulated substrate. By limiting the level of oxygen, carbon,
or nitrogen i in the channel region to an amount not exceeding
5 x 10'* atoms/cm’, the claimed invention greatly improves
3a
the TFT’s electrical properties and consequently overcomes
potential deficiencies, such as hysteresis (blurring).
The application for the ‘636 patent was filed on June
7, 1995, and the ‘ 636 patent itself issued on August 6, 1996;
SEL alleges a much earlier priority date of May 18, 1984,
however. Gerard Ferguson, SEL’s patent attorney,
prosecuted the application for the ‘636 patent and its ancestor
applications, except for a brief period when Dr. Yamazaki
revoked his power of attorney because Mr. Ferguson sought
to submit certain material prior art references to the PTO.
The ‘636 patent began as a former 37 C.F.R. § 1.60
(1995) (“Rule 60”) divisional application, and thus had its
own Information Disclosure Statement (“IDS”).! The IDS,
filed on November 15, 1995, was fifteen pages long. The
IDS was accompanied by a Form PTO-1449 listing ninety
references that it wished to make of record, each of which the
examiner initialed. These references included Japanese
Laid-Open Application No. 56-135968, assigned to Canon
K.K. (“the Canon reference”). In the IDS, SEL submitted the
entire 29- page Canon reference in its original Japanese, a
concise explanation of its relevance, and an existing
one-page partial English translation from a prior unrelated
patent application. The concise explanation succinctly
described the Canon reference as disclosing “the use of
silicon nitride for a gate insulating layer of a thin film
transistor.” The one-page partial translation covered four
short sections of the Canon reference describing a TFT
structure, a semiconductor layer consisting of amorphous
| Under former Rule 60, a divisional application included a copy of the
previous application, but did not include the previous file wrapper. By
contrast, a 37 C.F.R. § 1.62 (1995) (“Rule 62”) continuation application
required the application to “utilize the file wrapper and contents of the
prior application.” 37 C.F.R. § 1.62(e).
4a
silicon, a gate electrode coated with silicon nitride, and an
empirical observation of the effect of substituting silicon
oxide for silicon nitride. SEL also made of record three
references that a potential licensee, IBM, had brought to its
attention as important prior art for obviousness purposes: a
1983 article by C.C. Tsai, entitled “Amorphous Si Prepared
in a UHV Plasma Deposition System” (“the Tsai article”),
and two of Dr. Yamazaki’s solar cell patents, Japanese Patent
Laid-Open Application Nos. 59-35423 (“the ‘423
application”) and 59- 35488 (“the ‘488 application”). The
Tsai article and the ‘423 and ‘488 applications all teach the
reduction of impurities below the level claimed in the ‘636
patent.
On October 10, 1996, SEL filed a complaint in the
United States District Court for the Eastern District of
Virginia alleging that Samsung’s active matrix displays and
computers having such displays infringed three of SEL’s
semiconductor patents: the ‘636 patent, U.S. Patent No.
5,521,400 (“the ‘400 patent’’), and U.S. Patent No. 5,349,204
(“the ‘204 patent”).2 Samsung denied infringement and
asserted numerous affirmative defenses, including
non-enablement, obviousness, best mode violation, and
inequitable conduct. Samsung subsequently counterclaimed,
charging SEL with federal and New Jersey RICO, antitrust,
and unfair competition violations.
SEL moved for summary judgment on Samsung’s
inequitable conduct defense and on Samsung’s RICO,
antitrust, and unfair competition counterclaims. The district
court granted SEL’s motion on the RICO and antitrust
2 On March 4, 1998, SEL by stipulation amended its complaint to
remove its allegations that Samsung was infringing the ‘400 and ‘204
patents, leaving the ‘636 patent the only patent-in-suit.
Sa
counterclaims, but denied it on the inequitable conduct
defense and the unfair competition counterclaim.
After a seven-day bench trial, the district court found
the ‘636 patent to be unenforceable for inequitable conduct
under two alternative theories. First, the district court
determined that, by submitting a concise explanation and a~
one-page partial translation of the Canon reference that were
accurate but misleadingly incomplete, SEL had intentionally
withheld the Canon reference from the PTO. See SEL 2, 4 F.
Supp. 2d at 484. The concise statement, for example,
identified only the silicon nitride gate as pertinent, and
neglected to discuss the Canon reference’s admonition to
avoid impurities. Second, the district court determined that,
by mischaracterizing the Tsai article as applying primarily to
solar cells rather than TFTs in arguments to the PTO, SEL
had intentionally misled the examiner into believing that the
Tsai article was not material. See id. at 486.
- The district court cited multiple facts as
demonstrating SEL’s deceitful intent. For example, Kunitaka
Yamamoto, SEL’s in-house patent agent could not
satisfactorily account for his misstatement of the level of
impurities discussed in U.S. Patent No. 4,766,477 to
Nakagawa (“the Nakagawa reference”) during the
prosecution of U.S. Patent No. 5,315,132 (“the ‘132 patent”),
which issued on an ancestor application to that of the ‘636
patent. The district court similarly discredited Dr.
3 SEL 2 provides a genealogy chart clarifying the relationships
between the ‘132 patent, the ‘636 patent, and interim applications. See 4
F, Supp. 2d at 497. In short, the ‘636 patent resulted from a divisional
application of U.S. Patent Application No. 425,455 (“the ‘455
application”), which in turn was a continuation of U.S. Patent Application
No. 214,494 (“the ‘494 application”), which in tum was a divisional
application of the application which resulted in the ‘132 patent.
6a
Yamazaki’s claim that he did not comprehend the
significance of the Tsai article, since he had described a
speech by Dr. Tsai discussing her work as “spectacular,” had
requested the article from Dr. Tsai in October 1983, and had
cited it in a 1984 article in the Journal of Non-Crystalline
Solids. Moreover, Dr. Yamazaki’s own ‘423 and ‘488
applications had expressly stated that the benefits of the low
levels of impurities in solar cells also applied to TFTs.
Though Dr. Yamazaki had submitted the Tsai article and his
‘423 and ‘488 applications to the PTO during the prosecution
of the application for the ‘636 patent and the ‘455
application, the district court noted that he did so only after
IBM, a potential licensee, expressly called its attention to
these references. Thus, the district court concluded that
“(t]he evidence demonstrate[d] a sophisticated, subtle, and
consistent effort to hide the ball from the PTO in a manner
plainly at odds with an applicant’s duty of candor, good faith,
and honesty.” SEL 2, 4 F. Supp. 2d at 496.
In response to SEL’s motion to reconsider SEL 2, the
district court issued a new opinion correcting its previous
discussion of the Tsai article. See SEL 3, 24 F. Supp. 2d at
537. The district court recognized that SEL’s
misrepresentations with respect to the Tsai reference had
actually occurred during SEL’s prosecution of the ‘455 and
‘494 applications, the two applications immediately
preceding the application that resulted in the ‘636 patent, and
were not repeated during the prosecution of the application
that resulted in the ‘636 patent. Relying upon a doctrine of
“infectious unenforceability” discussed, but not applied, in
SEL 2, 4 F. Supp. 2d at 493, however, the district court held
that SEL’s misrepresentations during the prosecution of the
ancestor ‘455 and ‘494 applications provided an alternative
basis for rendering the ‘636 patent unenforceable. See SEL 3,
24 F. Supp. 2d at 545.
7a
DISCUSSION
I. Inequitable Conduct
Patent applicants are required to prosecute patent
applications with candor, good faith, and honesty. See
Molins PLC v. Textron, Inc., 48 F.3d 1172, 1178, 33
U.S.P.Q.2d 1823, 1826 (Fed. Cir. 1995). “{I]nequitable
conduct includes affirmative misrepresentation of a material
fact, failure to disclose material information, or submission
of false material information, coupled with an intent to
deceive.” Jd. The alleged infringer, whether a defendant in a
patent infringement suit or a declaratory judgment plaintiff,
must demonstrate by clear and convincing evidence both that
the information was material and that the conduct was
intended to deceive. See id.
The court first discerns whether the withheld
references or misrepresentations satisfy a threshold level of
materiality and whether the applicant’s conduct satisfies a
threshold showing of intent to deceive. See id. If these
thresholds are satisfied, the trial court balances materiality
and intent to determine whether the equities warrant the
conclusion that inequitable conduct occurred. See id. at
1178, 48 F.3d 1172, 33 U.S.P.Q.2d at 1827. “In light of all
circumstances, an equitable judgment must be made
concerning whether the applicant’s conduct is so culpable
that the patent should not be enforced.” Jd.
We may reverse a determination of inequitable
conduct only if it is based on “clearly erroneous findings of
fact or on a misapplication or misinterpretation of applicable
law, or evidences a clear error of judgment on the part of the
district court.” Jd. We review the district court’s subsidiary
determinations of materiality and intent for clear error, and
may disturb them only if we are left with “a definite and firm
~
8a
conviction” that the district court committed a mistake. Jd.
We review a district court’s ultimate determination of
inequitable conduct under an abuse of discretion standard.
See id.
A. Materiality
37 C.F.R. § 1.56 (1995) (“Rule 56”) defines information
as material to patentability when:
[I]t is not cumulative to information already of
record or being made of record in the
application, and
(1) It establishes, by itself or in
combination with other information, a
prima facie case of unpatentability of a
claim; or
(2) It refutes, or is inconsistent with, a
position the applicant takes in:
(i) Opposing an argument = of
unpatentability relied on by the
Office, or
(ii) Asserting an argument of
patentability.
A withheld reference may be highly material when it
discloses a more complete combination of relevant features,
even if those features are before the patent examiner in other
references. Molins, 48 F.3d at 1180, 33 U.S.P.Q.2d at 1828.
Reiterating many of its arguments before the district
court, SEL contends that the untranslated portions of the
Canon reference were not material to patentability because
9a
they were cumulative to other information. More particularly,
SEL alleges that the Canon reference only discloses a
conventional IGFET device and generally teaches the
avoidance of impurities on the surface of the intrinsic
semiconductor layer. SEL also contends that the Canon
reference, whether alone or combined with other references,
would not have established a prima facie case of
unpatentability, since it does not disclose the maximum
impurity level of oxygen, nitrogen, or carbon in the channel
region for overcoming the hysteresis problem.
We discern no clear error in the district court’s
finding that the Canon reference was material. The district
court cited several reasons for finding the Canon reference to
be material to patentability. First, the district court found that
the Canon reference was not cumulative, since the
untranslated portions of Canon contained a more complete
combination of the elements claimed in the ‘636 patent than
anything else before the PTO. Specifically, the Canon
reference discloses the intrinsic amorphous silicon layer, the
silicon nitride gate insulator, the sandwich structure, and the
key admonition to avoid impurities in semiconductor
materials, each of which is claimed by the ‘636 patent.
Second, the district court found that the Canon reference
established a prima facie case of unpatentability in
combination with other information, particularly the
teachings of the Tsai article or Dr. Yamazaki’s own ‘423 or ‘
488 applications. As Samsung’s expert, Dr. Fonash,
explained, a fully translated Canon reference would have
provided a “good blueprint” for making the exact device
described by the ‘636 patent. Consequently, taken together
with the Tsai article, the Canon reference would have
rendered obvious the asserted claims of the ‘636 patent.
10a
B. Intent
“Intent need not be proven by direct evidence; it is
most often proven by a showing of acts, the natural
consequence of which are presumably intended by the actor.”
Molins, 48 F.3d at 1180, 33 U.S.P.Q.2d at 1828-29.
“Generally, intent must be inferred from the facts and
circumstances surrounding the applicant’s conduct.” Jd. at
1180-81, 48 F.3d 1172, 33 U.S.P.Q.2d at 1829. “Since the
fact-finder has personally heard and observed the demeanor
of witnesses, we accord deference to the fact-finder’s
assessment of a witness’s credibility and character.” Jd. at
1181, 48 F.3d 1172, 33 U.S.P.Q.2d at 1829.
Proof of high materiality and that the applicant knew
or should have known of that materiality makes it difficult to
show good faith to overcome an inference of intent to
mislead. See Critikon, Inc. v. Becton Dickinson Vascular
Access, Inc., 120 F.3d 1253, 1257, 43 U.S.P.Q.2d 1666, 1669
(Fed. Cir. 1997). “The more material the omission or the
misrepresentation, the lower the level of intent required to
establish inequitable conduct, and vice versa.” Jd. at 1256,
120 F.3d 1253, 43 U.S.P.Q.2d at 1668. In evaluating
whether the district court clearly erred in its factual finding of
deceitful intent, we must assure ourselves that the district
court did not overlook mitigating factors. See Akron Polymer
Container Corp. v. Exxel Container, Inc., 148 F.3d 1380,
1384, 47 U.S.P.Q.2d 1533, 1536 (Fed. Cir. 1998).
Again reiterating its arguments to the district court,
SEL argues that it did not intend to mislead the examiner by
submitting only a partial translation of the Canon reference
and a concise statement not addressing its key teachings,
such as its admonition to avoid impurities. SEL contends
that Dr. Yamazaki subjectively believed that the Canon
lla
reference was valuable only for its disclosure of the
conventional IGFET structure.
As evidence of its good faith, SEL emphasizes that it
submitted the entire Canon reference in its original Japanese.
SEL also underscores the fact that it meticulously complied
with 37 C.F.R. § 1.98(a),(c)* (1995) by providing an
accurate, concise explanation of the relevance of the Canon
reference and a pre-existing partial translation. SEL further
claims that Manual of Patent Examining Procedure
(“MPEP”’) § 609 establishes “permissive,”
“non-burdensome,” “free of nsk,” and “gently suggestive at
best, and certainly not mandatory” standards for foreign
language references. For example, SEL notes that MPEP §
4 Rule 98 (“Content of information disclosure statement”) provides in
pertinent part:
(a) Any information disclosure statement filed under § 1.97 shall
include:
(3) A concise explanation of the relevance, as it is presently
understood by the individual designated in § 1.56(c) most
knowledgeable about the content of the information, of each
patent, publication, or other information listed that is not in
the English language. The concise explanation may be
either separate from the specification or incorporated
therein.
(c) ... If a written English-language translation of a non-English
document, or portion thereof, is within the possession, custody,
or control of, or is readily available to any individual designated
in § 1.56(c), a copy of the translation shall accompany the
statement.
(emphasis added.)
12a
609 does not require that the applicant discuss differences
between the cited information and the claims. See MPEP §
609A(3); see also Duty of Disclosure, 57 Fed. Reg. 2021,
2026, cmts. 24 & 26 (1992) (stating that Rule 56 does not
require that applicant combine references against its own
claims or analyze references.). According to SEL, its
technical compliance with the PTO Rules should weigh
against an inference of intent to deceive the examiner. C/
Northern Telecom, Inc. v. Datapoint Corp., 908 F.2d 931,
939, 15 U.S.P.Q.2d 1321, 1327 (Fed. Cir. 1990) (holding that
amendment made as of right under MPEP weighs against an
inference of intent to deceive). As further proof of its good
faith, SEL highlights the fact that it voluntarily provided the
Canon reference to the PTO without any prodding from a
licensee (e.g., IBM).
We discern no clear error in the district court’s
finding that SEL willfully misrepresented the Canon
reference. As a general matter, we first note that the district
court found Dr. Yamazaki and SEL’s other witnesses to be
not credible. Instead, the district court credited the testimony
of Samsung’s witnesses over that of SEL’s whenever there
was a conflict. The district court further found that Dr.
Yamazaki, a solid state physicist whose native language is
Japanese, understood the materiality of the Canon reference.
The district court also determined that Dr. Yamazaki knew
that a more complete translation or concise explanation of the
relevance of the Canon reference would decrease the
likelihood of the ‘636 patent being issued, given his
understanding of the Canon reference and his immense
experience in prosecuting patents. The district court thus
concluded that Dr. Yamazaki must have consciously decided
which sections to reveal to the PTO through SEL’s partial
translation.
13a
Though SEL repeatedly highlights those actions that
are not improper, SEL cannot overcome a finding of deceitful
intent merely by showing that it did certain things properly.
Rather, SEL must explain its conduct in failing to provide a
more complete translation or concise explanation of the
Canon reference. This it simply does not do. As the district
court noted, “the record as a whole reflects a clear pattern
and practice of initial disclosure, followed by incremental
disclosure only when compelled by the circumstances to do
so, followed, at times, by mischaracterization.” SEL 2, 4 F.
Supp. 2d at 496.
SEL’s technical compliance with Rule 98 and its
entreaty to MPEP § 609A(3) lend it little aid. Though Rule
98 requires that the applicant provide any existing translation
of a foreign reference, Rule 98 provides neither a safe harbor
nor a shield against allegations of inequitable conduct. As
the district court explained, Rule 98 merely “provides a floor
for required submissions of translations of foreign
applications, not a ceiling; it is by no means an excuse or
license for concealing material portions of a prior art
reference.” SEL 3, 24 F. Supp. 2d at 541. The district court
found that Dr. Yamazaki knew that the Canon reference
disclosed the important admonition to. avoid impurities and
that the preexisting, one-page partial translation did not
discuss this teaching. Given the critical absence of this
teaching from the partial translation and his knowledge of
this absence, “[i]t was incumbent upon [Dr. Yamazaki] to
provide the PTO with sufficient information for a reasonable
examiner to consider the [submission] in context, not with a
selective and misleading disclosure. The inventor[ ] failed to
do that and cannot post facto hide behind the MPEP
guidelines to argue that what [he] did with a purpose should
be disregarded.” Refac Int'l, Ltd. v. Lotus Dev. Corp., 81
F.3d 1576, 1584, 38 U.S.P.Q.2d 1665, 1672 (Fed. Cir. 1996).
l4a
Similarly, MPEP § 609A(3) merely indicates that
“(t]he concise explanation may indicate that a particular
figure or paragraph of the patent or publication is relevant to
the claimed invention. It might be a simple statement
pointing to similarities between the item of information and
the claimed invention.” Thus, though MPEP § 609A(3)
allows the applicant some discretion in the manner in which
it phrases its concise explanation, it nowhere authorizes the
applicant to intentionally omit altogether key teachings of the
reference. If, as SEL suggests, the concise statement
requirement allowed applicants to selectively disclose what
they know as long as what they selected for disclosure was
accurate, applicants could easily mislead the examiner by
explaining all but one of the relevant elements, thereby
leaving the examiner with the impression that the reference
did not anticipate, render obvious, or otherwise make
unpatentable the claimed invention.
C. Failure to Disclose
Finally, SEL contends that, because it submitted the
entire untranslated Canon reference to the PTO, it cannot be
deemed to have withheld the reference from the examiner.
See Scripps Clinic & Research Found. v. Genentech, Inc.,
927 F.2d 1565, 1582, 18 U.S.P.Q.2d 1001, 1015 (Fed. Cir.
1991) ( “When a reference was before the examiner ..., it can
not be deemed to have been withheld from the examiner.”’).
SEL notes that the PTO does not require applicants to
translate foreign references into English. See MPEP §
609C(2) ( “The examiner should not require that a translation
be filed by the applicant.”). SEL thus claims that it cannot be
faulted for not providing a more complete translation of the
Canon reference.
SEL argues that the examiner, who is presumed to
have done his job correctly, must also be presumed to have
15a
read and understood the Canon reference in its native
Japanese. See Molins, 48 F.3d at 1184, 33 U.S.P.Q.2d at
1832 (absent proof to the contrary, court assumed that
examiner had considered a post- issuance, English-language
submission under 37 C.F.R. § 1.501 that the examiner had
initialed). SEL emphasizes that the PTO maintains a staff of
translators and that an examiner “may request translations
throughout the examination process.” Gambro Lundia AB v.
Baxter Healthcare Corp., 110 F.3d 1573, 1582, 42
U.S.P.Q.2d 1378, 1386 (Fed. Cir. 1997).
We perceive no clear error in the district court’s
conclusion that SEL effectively failed to disclose the Canon
reference to the PTO by providing a one-page, partial
translation of the entire 29-page application. By submitting
the entire untranslated Canon reference to the PTO along
with a one- page, partial translation focusing on less material
portions and a concise statement directed to these less
material portions, SEL left the examiner with the impression
that the examiner did not need to conduct any further
translation or investigation. Thus, SEL deliberately deceived
the examiner into thinking that the Canon reference was less
relevant than it really was, and constructively withheld the
reference from the PTO. SEL’s submission hardly satisfies
the duty of candor required of every applicant before the
PTO.
SEL’s contention that the examiner must have both
read and fully understood the entire untranslated Canon
reference based on his having read the misleadingly
incomplete one-page translation and concise statement is
absurd. Though the examiner is indeed presumed to have
done his job correctly, there is no support in the law for a
presumption that the examiner will understand foreign
languages such as Japanese or will request a costly complete
translation of every submitted foreign language document,
l6a
particularly in the absence of any reason to do so. Rather, as
MPEP § 609C(2) reveals, the examiner’s understanding of a
foreign reference is generally limited to that which he or she
can glean from the applicant’s concise statement:
Information which complies with
requirements as discussed in this section but
which is in a non-English language will be
considered in view of the concise explanation
submitted (A(3) above) and insofar as it is
chemical formulas, in the same manner that
non-English language information in Office
search files is considered by examiners in
ee searches.
sopielyhenbaananiaiiny ‘The en examiner will
indicate that the non-English language
information has been considered in the same
manner as consideration is indicated for
information submitted in English. The
examiner should not require that a translation
be or waved rcigtr The examiner should
(emphasis added). Consequently, while the examiner’s
initials require that we presume that he or she considered the
Canon reference, this presumption extends only to the
examiner’s consideration of the brief translated portion and
the concise statement.
SEL’s contention that the PTO should not require
applicants to translate all foreign references into English
17a
misses the critical point. The duty at issue in this case is the
duty of candor, not a duty of translation. The duty of candor
does not require that the applicant translate every foreign
reference, but only that the applicant refrain from submitting
partial translations and concise explanations that it knows
will misdirect the examiner’s attention from the reference’s
relevant teaching. Here, the desirability of the examiner
securing a full translation was masked by the affirmatively
misleading concise statement and one-page translation.
Thus, we discern no clear error in the district court’s
findings with respect to materiality and intent, and hold that
the district court did not abuse its discretion in finding the
‘636 patent to be unenforceable for SEL’s inequitable
conduct in providing a misleadingly incomplete, partial
translation of the Canon reference and a narrow and
incomplete concise statement. Given our holding that the
‘636 patent is unenforceable in light of SEL’s inequitable
conduct with respect to the Canon reference, we expressly
decline to reach the district court’s alternative determination
of “infectious unenforceability” based on SEL’s misconduct
during the prosecution of the ‘455 and ‘494 applications.
II. Federal And New Jersey Rico Counterclaims
Samsung cross-appeals the district court’s grant of
summary judgment dismissing its federal and New Jersey
RICO counterclaims. We review a grant of summary
judgment without deference, reapplying the same legal
standard as the district court to the same record before it and
drawing all reasonable inferences in favor of the non-moving
party, here Samsung. See Ford Motor Co. v. United States,
157 F.3d 849, 854 (Fed. Cir. 1998).
18a
A. Federal RICO
The asserted sections of the federal RICO statute
provide:
(a) It shall be unlawful for any person
who has received any income derived,
directly or indirectly, from a pattern of
racketeering activity .. to use or
invest, directly or indirectly, any part
of such income, or the proceeds of
such income, in acquisition of any
interest in, or the establishment or
operation of, any enterprise which is
engaged in, or the activities of which
affect, interstate or foreign commerce.
(c) It shall be unlawful for any person
employed by or associated with any
enterprise engaged in, or the activities
of which affect, interstate or foreign
commerce, to conduct or participate,
directly or indirectly, in the conduct of
such enterprise’s affairs through a
pattem of racketeering activity or
collection of unlawful debt.
18 U.S.C. § 1962. Section 1962(a) makes it illegal to invest
the income of racketeering activity. Section 1962(c), by
contrast, makes it illegal to engage in racketeering activity.
Section 1964(c) provides a person with a civil remedy for
injuries to business or property from violations of Section
1962.
19a
A RICO plaintiff must demonstrate a “pattern of
racketeering activity” consisting of at least two instances of
racketeering activity. 18 U.S.C. § 1961(5); Mylan Labs., Inc.
v. Matkari, 7 F.3d 1130, 1135 (4th Cir.1993). Mail and wire
fraud both qualify as predicate acts under the federal RICO
statute. See 18 U.S.C. § 1961(1). The mail fraud statute
makes illegal the use of U.S. mail for “any scheme or artifice
to defraud, or for obtaining money or property by means of
false pretenses.” 18 U.S.C. § 1341 (emphasis added).
Similarly, the wire fraud statute makes illegal the use of
“wire, radio, or television communication” for “any scheme
or artifice to defraud, or for obtaining money or property by
means of false or fraudulent pretenses, representations, or
promises.” 18 U.S.C. § 1343.
Samsung alleges a “three-party pass-through fraud
structure” wherein SEL committed numerous acts of mail
and/or wire fraud on the PTO. Samsung first claims that,
long before the ‘636 patent issued, SEL targeted Samsung as
a defendant for a patent infringement suit. Samsung alleges
that a competitor of Samsung, a “VIP” client of SEL, then
agreed to pay SEL’s litigation costs in its suit against
Samsung. According to Samsung, SEL made material
misrepresentations to the PTO using the U.S. mail and
withheld material references from the PTO. Samsung claims
that this fraud resulted in the improper issuance of the three
originally asserted patents, which SEL in turn has employed
to extort Samsung and others. Although Samsung concedes
that the direct fraud was perpetrated upon the PTO, Samsung
asserts that it was the indirect but intended victim of this
scheme. As a result of this litigation, Samsung claims to
have spent millions of dollars on legal fees and design-
around efforts and to have sustained injury to its relationships
with its customers, who sought assurances that Samsung will
indemnify them against potential patent infringement liability
claims brought by SEL.
20a
The district court cited Mylan Labs., Inc. v. Akzo,
N.V., 770 F. Supp. 1053, 1071-73 (D.Md.1991), aff'd sub
nom. Mylan Labs., Inc. v. Matkari, 7 F.3d 1130 (4th
Cir.1993), as foreclosing inequitable conduct during patent
prosecution from qualifying as a required predicate act. In
Akzo, the RICO plaintiff alleged that the defendants
committed predicate acts of mail fraud against the Food and
Drug Administration (“FDA”) in obtaining its approval of
abbreviated new drug applications (“ANDAs”). The Akzo
court ruled that ANDAs, as unissued licenses, were not
property in the government’s hands for mail fraud purposes,
and thus the defendant’s conduct before the FDA did not
constitute predicate acts for purposes of the federal RICO
statute. See id. at 1072-73. The district court viewed
ANDAs and patents to be indistinguishable.
On appeal, Samsung distinguishes Akzo as involving
licenses, in which the government has no financial interest
and which therefore are not property. By contrast, under
federal patent law and Supreme Court precedent, an issued
patent constitutes property. See 35 U.S.C. § 261 (“[P]atents
shall have the attributes of personal property.”);
Hartford-Empire Co. v. United States, 323 U.S. 386, 415, 65
S.Ct. 373, 89 L.Ed. 322 (1945). Samsung notes that 35
U.S.C. § 261 does not expressly distinguish between a patent
in the hands of the patentee or the government. In fact, the
federal government is subject to suit when it infringes a
patent that it has granted. See 28 U.S.C. § 1498(a).
Alternatively, Samsung contends that a patent is
actually more closely analogous to a franchise than a license.
Whereas a license is a promise by the government not to
interfere, see Toulabi v. United States, 875 F.2d 122, 125-26
(7th Cir.1989), a franchise is a right that belongs to the
government when conferred upon a citizen and that inheres
in the sovereign power, see Borre v. United States, 940 F.2d
2la
215, 220 (7th Cir.1991). The Seventh Circuit has held that
fraud in procuring a franchise is subject to the mail fraud
statute. See Borre, 940 F.2d at 220. According to Samsung,
a patent, like a franchise, enables its owner to exclude others,
including the government.
We apply our own law to determine whether SEL’s
conduct before the PTO qualifies as mail fraud for purposes
of the predicate acts requirement of the federal RICO statute.
See Pro-Mold & Tool Co. v. Great Lakes Plastics, Inc., 75
F.3d 1568, 1574, 37 U.S.P.Q.2d 1626, 1631 (Fed. Cir. 1996)
(holding that, though we do not have exclusive jurisdiction
over unfair competition claims, our own circuit law
nonetheless determines when inequitable conduct also
constitutes unfair competition). We agree with the district
court that inequitable conduct before the PTO cannot qualify
as an act of mail fraud or wire fraud for purposes of the
predicate act requirement. In the context of the mail fraud
statutes, “the words ‘to defraud’ commonly refer ‘to
wronging one in his property rights by dishonest methods or
schemes’ and ‘usually signify the deprivation of something
of value by trick, deceit, chicane or overreaching.’ ”
McNally v. United States, 483 U.S. 350, 358, 107 S.Ct. 2875,
97 L.Ed.2d 292 (1987) (quoting Hammerschmidt v. United
States, 265 U.S. 182, 188, 44 S.Ct. 511, 68 L.Ed. 968
(1924)).5 In this case, however, the PTO has not been
5 We note that, in 1988, Congress added 18 U.S.C. § 1346 in response
to McNally. Section 1346 provides:
For purposes of this chapter, the term “scheme or artifice to
defraud” includes a scheme or artifice to defraud another of the
intangible right of honest services.”
On appeal, however, Samsung does not argue that SEL’s conduct
before the PTO was intended to “defraud another of the intangible
right of honest services,” and thus we do not address the possibility
of such defrauding here.
22a
defrauded of préperty. Although that “a patent is property,
protected against appropriation both by individuals and by
government, has long been settled,” Hartford-Empire, 323
U.S. at 415, 65 S.Ct. 373, an application that has not yet
matured into a patent cannot properly be deemed government
property.
We also reject Samsung’s attempt to analogize a
patent to a franchise for purposes of the mail and wire fraud
statutes. A franchise involves a transfer of extant rights
previously held exclusively by the sovereign. See California
v. Central Pac. R. Co., 127 U.S. 1, 40, 8 S.Ct. 1073, 32 L.Ed.
150 (1888). Examples of franchises include cable television
and public utilities. See Borre, 940 F.2d at 220. By contrast,
the patent right to exclude a party from practicing a particular
invention is never held by the sovereign, but only by the
patentee after issuance.
In short, Samsung has failed to satisfy the predicate
act requirement for its federal RICO counterclaims, as SEL’s
inequitable conduct did not “defraud” the government of any
“property” under either the federal mail or wire fraud
statutes. Consequently, we hold that the district court
properly granted summary judgment dismissing Samsung’s
federal RICO claims.
B. New Jersey RICO
The district court noted that the New Jersey RICO
statute was modeled after the federal statute, see State v. Ball,
141 N.J. 142, 661 A.2d 251, 258 (N.J.1995), and that its
relevant sections, N.J.S.A. § 2C:41-2(a), (c), also require
proof of a pattern of racketeering activity. In view of its
rejection of Samsung’s mail and wire fraud allegations as
predicate acts with respect to the federal RICO
23a
counterclaims, the district court concluded that Samsung’s
New Jersey RICO counterclaims were similarly deficient.
On appeal, Samsung argues that racketeering under
the New Jersey RICO Act includes New Jersey crimes as
well as “equivalent crimes under the laws of any other
jurisdiction,” NJ.S.A. § 2C:41-l.a. Samsung notes that
qualifying predicate acts under the New Jersey statute would
include forgery and fraudulent practices, see N.J.S.A. §
2¢*:41-1.a(1)(0), offering a false instrument for filing, see
N.J.S.A. § 2C:21-3.b, and making false statements to PTO
examiners in violation of federal penal provisions such as 18
U.S.C. § 1001.6 Samsung contends that the district court
ignored these additional state and federal violations and
hence improperly dismissed its state RICO claims.
SEL responds that, regardless of the expanded scope
of predicate acts under the New Jersey RICO statute, we can
still affirm the district court’s dismissal of the New Jersey
RICO claims on the alternative ground of federal preemption.
In dismissing Samsung’s federal RICO counterclaims, the
district court suggested that RICO claims and the inequitable
conduct defense are mutually exclusive remedies. The
district court noted that the affirmative defense of inequitable
conduct supplies an adequate remedy by rendering the patent
6 18U.S.C. § 1001 provides:
Whoever in any matter within the jurisdiction of any department
or agency of the United States knowingly or willfully falsifies,
conceals, or covers up by any trick, scheme, or device a material
fact, or makes any false, fictitious or fraudulent statements or
representations, or makes or uses any false writing or document
knowing the same to contain any false, fictitious or fraudulent
statement or entry, shall be fined not more than $10,000 or
imprisoned not more than five years, or both.
24a
unenforceable and possibly also entitling the alleged
infringer to attorney fees under 35 U.S.C. § 285.
Samsung disputes that the federal patent laws
preempt its state RICO counterclaims, noting that the patent
statute nowhere expressly excludes RICO remedies.
Samsung claims that SEL’s misconduct is not a
“garden-variety” instance of inequitable conduct, and
emphasizes the Supreme Court’s recognition of concurrent
RICO and state law remedies for a single activity. See
Humana, Inc. v. Forsyth, 525 U.S. 299, 303, 119 S.Ct. 710,
142 L.Ed2d 753 (1999) (holding that the
McCarran-Ferguson Act, which bars application of a federal
law in the face of a state law enacted “for the purpose of
regulating the business of insurance,” did not preclude the
concurrent assertion of the federal RICO statute and Nevada
insurance law). Samsung also notes that the New Jersey
RICO Act states that “(t]he remedies provided in this act
shall be cumulative with each other and other remedies at
law.” N.J.S.A. § 2C:41- 6.1.
Samsung underscores the broad remedies available
under the RICO statutes. With respect to monetary relief, the
patent laws would permit only the recovery of attorney fees,
while the New Jersey RICO statute would allow the
prevailing plaintiff “threefold any damages he sustains and
the cost of the suit, including a reasonable attorney’s fee,
costs of investigation and litigation.” N.J.S.A. § 2C:41-4.c.
Samsung asserts that its alleged damages, which include
design-around costs and loss of goodwill, are a recognized
form of RICO damages. See, e.g., Khurana v. Innovative
Health Care Sys., Inc., 130 F.3d 143, 150-51 (Sth Cir.1997),
cert. granted, judgment vacated, and case dismissed as moot,
525 U.S. 979, 119 S.Ct. 442, 142 L.Ed.2d 442 (1998).
25a
Finally, Samsung analogizes its New Jersey RICO
counterclaims to the state tort claims held not to be
preempted in Dow Chem. Co. v. Exxon Corp., 139 F.3d 1470,
46 U.S.P.Q.2d 1120 (Fed. Cir. 1998). In Dow, we held that
the state law claim of intentional interference with actual and
prospective contractual relationships was not preempted by
federal patent law, even though the claim was based partly on
acts of alleged inequitable conduct before the PTO. We
reasoned that because the state cause of action also included
elements not found in the patent infringement defense of
inequitable conduct, but in the marketplace against
inhabitants of the state, the state tort as applied was not an
impermissible attempt to offer patent-like protection. See id.
at 1477, 139 F.3d 1470, 46 U.S.P.Q.2d at 1126. Samsung
claims that, like the state claim in Dow, its RICO
counterclaims allege “additional elements not found in the
federal patent law cause of action,” id. at 1473, 139 F.3d
1470, 46 U.S.P.Q.2d at 1123, such as SEL’s targeting of
Samsung and its eventual filing of this lawsuit.
We agree with SEL that the federal patent laws
preempt Samsung’s New Jersey RICO counterclaims. As
applied, the state RICO counterclaims in this case are more
closely analogous to the state abuse of process counterclaim
held to be preempted in Abbott Labs. v. Brennan, 952 F.2d
1346, 21 U.S.P.Q.2d 1192 (Fed. Cir. 1991), than the
intentional interference with contractual relationship
counterclaim in Dow. In Abbott, the applicant had committed
inequitable conduct by backdating a request for an extension
of time and falsely averring that the request had been timely
made, resulting in his loss of priority. This court concluded
that “the federal administrative process of examining and
issuing patents, including proceedings before the PTO’s
boards, is not subject to collateral review in terms of the
common law tort of abuse of process.” Jd. at 1357, 21
U.S.P.Q.2d at 1201.
26a
Like the state abuse of process claim in Abbott, “the
wrong alleged and for which state law tort damages [are]
sought [is] no more than bad faith misconduct before the
PTO.” Dow, 139 F.3d at 1477, 46 U.S.P.Q.2d at 1126. As
pleaded by Samsung, its New Jersey RICO counterclaims
occupy a field identical in scope with the inequitable conduct
defense. If the conduct constituting inequitable conduct,
without more, could be considered predicate acts under
federal or state RICO law, then every accused infringer
asserting an inequitable conduct defense would also bring
such a RICO counterclaim. An additional state cause of
action predicated so squarely on the acts of inequitable
conduct would be “contrary to Congress’ preemptive
regulation in the area of patent law.” Abbott, 952 F.2d at
1357, 21 U.S.P.Q.2d at 1201.
Samsung’s contention that its New Jersey RICO
counterclaims allege additional elements not found in the
federal patent law cause of action for inequitable conduct is
inaccurate. Samsung conveniently ignores the distinction
between acts that may be proven as part of a state RICO
violation and those which must be proven for liability. As
applied by Samsung, the New Jersey RICO statute does not
contain as necessary elements of the offense the sorts of acts
beyond misrepresentations or willful omissions to the PTO
that Samsung alleges in this case. To satisfy the predicate act
requirement (and indeed all requirements) of the state RICO
statute, Samsung alleges only the act of filing a false
statement, but this act completely overlaps with the alleged
misrepresentations giving rise to its inequitable conduct
defense. Samsung’s additional allegations that SEL targeted
and intended to assert the ‘400, ‘204, and ‘636 patents
against Samsung even before these patents issued do not take
Samsung’s application of the New Jersey RICO statute
outside of the ambit of the inequitable conduct defense.
Every patent applicant files its application believing it could
27a
assert the resulting patent against infringers (or else seeking
the patent would be a worthless endeavor), and it is not
unusual for a patent applicant to “target” potential defendants
even before the patent issues. Cf MPEP § 708.02(II)
(allowing an applicant to file a Petition to Make Special to
accelerate prosecution in view of actual infringement by
another party). We therefore reject Samsung’s attempts to
contort the elements of inequitable conduct to satisfy the
New Jersey RICO statute, with its stated purpose of
combating organized crime. See N.J.S.A. § 2C:41-1.1.c.
Thus, we affirm the district court’s grant of summary
judgment dismissing Samsung’s New Jersey RICO
counterclaims as preempted by the patent laws of the United
States.
CONCLUSION
The district court did not abuse its discretion in
holding the ‘636 patent unenforceable for inequitable
conduct. The district court correctly applied the statute,
regulations, and case law, and did not make clearly erroneous
findings of fact on materiality and deceptive intent. Under
all the circumstances of record, the court did not seriously
misjudge the import of the evidence, particularly the degree
7 For a civil federal RICO claim under 18 U.S.C. § 1962(c), the RICO
“enterprise” must be distinct from the RICO “person,” i.e., the defendant.
See Palmetto State Med. Ctr., Inc. v. Operation Lifeline, 117 F.3d 142,
148 (4th Cir.1997). The district court also dismissed Samsung’s federal
and state RICO counterclaims on the ground that the alleged SEL
“enterprise” consisting of SEL, Dr. Yamazaki, and Mr. Ferguson was
insufficiently distinct from the SEL “person.” Because we affirm the
district court’s dismissal of Samsung’s respective federal and New Jersey
RICO counterclaims as failing to allege a predicate act and as preempted
under the circumstances of this case, we decline to reach the correctness
of the district court’s holding regarding this “enterprise” element.
28a
of materiality as against the level of deceptive intent, in
reaching the conclusion that equity warranted rendering the
patent unenforceable. In addition, the district court correctly
granted summary judgment dismissing Samsung’s federal
and New Jersey RICO counterclaims, the former as failing to
allege legally adequate predicate acts, and the latter as
preempted by the patent laws of the United States.
Accordingly, we
AFFIRM.
beg BSR Barre ie aly ob Sere eae
29a
APPENDIX B
United States Court Of Appeals
For The Federal Circuit
Nos. 98-1377, 99-1103
SEMICONDUCTOR ENERGY
LABORATORY CO., LTD.,
Plaintiff-Appellant,
Vv.
SAMSUNG ELECTRONICS CO., LTD.,
SAMSUNG ELECTRONICS AMERICA, INC., AND
SAMSUNG SEMICONDUCTOR, INC.,
Defendants-Cross Appellants.
JUDGMENT
ON APPEAL from the U.S. District Court for the Eastern
District of Virginia
in CASE NO(S). 96-CV-1460
This CAUSE having been heard and considered, it is
ORDERED and ADJUDGED:
AFFIRMED.
ENTERED BY ORDER OF
THE COURT
DATED: Mar 02, 2000 /s/
JAN HORBALY, Clerk
ISSUED AS A MANDATE: May 4, 2000
30a
APPENDIX C
NOTE: Pursuant to Fed. Cir. R. 47.6, this order is not
citable as precedent. It is a public order.
United States Court Of Appeals For The Federal Circuit
Nos. 98-1377, 99-1103 (96-CV-1460)
SEMICONDUCTOR ENERGY
LABORATORY, CO., LTD.,
Plaintiff,
Vv.
SAMSUNG ELECTRONICS CoO. LTD.,
SAMSUNG ELECTRONICS AMERICA, INC.
AND SAMSUNG SEMICONDUCTOR, INC.,
Defendants.
ORDER
A combined petition for rehearing and petition for
rehearing en banc having been field by the APPELLANT,
and the petition for rehearing having been referred to the
panel that heard the appeal,
Upon consideration thereof,
IT IS ORDERED THAT:
The petition for rehearing is granted for the limited
and sole purposes of amending the opinion issued on March
2, 2000 as follows:
3la
On the thirteenth line from the top of
page 5, replace “Dr. Yamazaki” with
“Kunitaka Yamamoto, SEL’s in-house
patent agent.”
The petition for rehearing en banc is still pending.
FOR THE COURT
/s/
Jan Horbaly
Clerk
Dated: March 29, 2000
cc: J. Alan Galbraith, Esq.
David J. Healey, Esq.
32a
APPENDIX D
CORRECTED
United States Court of Appeals for the Federal Circuit
Nos. 98-1377, 99-1103 (96-CV-1460)
SEMICONDUCTOR ENERGY
LABORATORY CO., LTD.,
Plaintiff-Appellant,
Vv.
SAMSUNG ELECTRONICS Co., LTD.,
SAMSUNG ELECTRONICS AMERICA, INC., AND
SAMSUNG SEMICONDUCTOR, INC.,
Defendants-Cross Appellants.
NOTE: Pursuant to Fed. Cir. R. 47.6, this order is not
citable as precedent. It is a public order.
ORDER
A combined petition for rehearing and petition for
rehearing en banc having been filed by the APPELLANT,
and the petition for rehearing having been referred to the
panel that heard the appeal,
Upon consideration thereof,
IT IS ORDERED THAT:
The petition for rehearing is granted for the limited
and sole purpose of amending the opinion issued on March 2,
2000 as follows:
33a
On the last line of page 5, replace “Dr.
Yamazaki” with “Kunitaka Yamamoto, SEL’s
in-house patent agent.”
The petition for rehearing en banc is still pending.
FOR THE COURT
/s/
Jan Horbaly
Clerk
Dated: April 5, 2000
CC: J. Alan Galbraith, Esq.
David J. Healey, Esq.
34a
APPENDIX E
United States Court of Appeals for the Federal Circuit
Nos. 98-1377, 99-1103 (DCT — 96 - CV-1460)
SEMICONDUCTOR ENERGY
LABORATORY CO., LTD.,
Plaintiff-Appellant,
V.
SAMSUNG ELECTRONICS CoO., LTD.,
SAMSUNG ELECTRONICS AMERICA, INC., AND
SAMSUNG SEMICONDUCTOR, INC.,
Defendants-Cross Appellants.
ORDER
A combined petition for rehearing* and petition for
rehearing en banc having been filed by the APPELLANT,
and a response thereto having been invited by the court and
filed by the CROSS-APPELLANTS, and the petition for
rehearing having been referred to the panel that heard the
appeal, and thereafter the petition for rehearing en banc and
response having been referred to the circuit judges who are in
regular active service,
UPON CONSIDERATION THEREOF, it is
The petition for rehearing was granted by separate order on March
29, 2000 to amend the opinion issued on March 2, 2000.
35a
ORDERED that the petition for rehearing en banc be
and the same hereby is, DENIED.
The mandate of the court will issue on May 3, 2000.
Circuit Judge Linn did not participate in the vote.
FOR THE COURT
/s/
Jan Horbaly
Clerk
Dated: April 26, 2000
cc: J. Alan Galbraith, Esq.
David J. Healey, Esq.
Note: Pursuant to Fed. Cir. R. 47.6, this order is not citable
as precedent. It is a public record.
36a
APPENDIX F
United States District Court, E.D. Virginia, -
Alexandria Division.
No. CIV. A. 96-1460-A.
SEMICONDUCTOR ENERGY
LABORATORY CO., LTD.,
Plaintiff,
V.
SAMSUNG ELECTRONICS CoO., LTD.,
SAMSUNG ELECTRONICS AMERICA, INC., AND
SAMSUNG SEMICONDUCTOR, INC.,
Defendants
March 20, 1998
MEMORANDUM OPINION
CACHERIS, District Judge.
This case is before the Court on Plaintiff's Motion for
Summary Judgment on Defendants’ Racketeer Influenced
and Corrupt Organizations (“RICO”) Counterclaims.
I.
Plaintiff, Semiconductor Energy Laboratory Co., Ltd.
(“SEL”) originally alleged that Defendants Samsung
Electronics Company, Samsung Electronics America, and
Samsung Semiconductor, Inc. (collectively “Samsung”)
infringed three of its patents. SEL has since dismissed its
37a
claims as to two of the patents. Samsung filed a
counterclaim alleging antitrust violations as well as
violations of Title [IX of the Organized Crime Control Act of
1970, 18 U.S.C. Sections 1961-1968, or the RICO statute,
and its New Jersey counterpart, New Jersey Statute 2C:41-2.
Samsung argues that SEL fraudulently obtained the three
patents originally at issue in this lawsuit and then filed
infringement claims against Samsung in an effort to receive
money for the patents.
Il.
Summary judgment is appropriate only if “the
pleadings, depositions, answers to interrogatories, and
admissions on file, together with the affidavits, if any, show
that there is no genuine issue as to any material fact and that
the moving party is entitled to a judgment as a matier of
law.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247,
106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Fed. R. Civ. P. 56(c).
“A district court must grant summary judgment if, after an
adequate time for discovery, a party fails to make a showing
sufficient to establish the existence of an essential element of
that party’s case.” Baber v. Hospital Corp. of Am., 977 F.2d
872, 874 (4th Cir.1992). However, a court may only grant a
summary judgment motion “if the non-movant failed to make
a sufficient showing on an element on which he had the
ultimate burden of proof.” Brock v. Entre Computer Crtrs.,
Inc., 933 F.2d 1253, 1259 (4th Cir.1991).
“The mere existence of a scintilla of evidence in
support of the [party’s] position will be insufficient; there
must be evidence on which the jury could reasonably find for
th{at] [party].” Anderson, 477 U.S. at 252. In reviewing the
evidence submitted by the parties, “the court must draw any
inferences in the light most favorable to the non-movant.”
Brock, 933 F.2d at 1259. The court must ultimately
38a
“determine whether the record taken as a whole could lead a
reasonable trier of fact to find for the non-movant.” Jd.
Il.
Samsung claims that SEL violated 18 U.S.C. Section
1962(a) and (c).!_ To prove RICO violations, the RICO
plaintiff must demonstrate a “pattern of racketeering activity”
which must consist of at least two instances of racketeering
activity. 18 U.S.C. § 1961(5); Mylan Lab., Inc. v. Matkari, 7
F.3d 1130, 1135 (4th Cir.1993). In this case, Samsung
asserts a “three-party pass-through fraud structure”, arguing
that SEL committed numerous acts of mail and/or wire
fraud? on the United States Patent and Trademark Office
(“PTO”) which resulted in approval of certain patent
applications. According to Samsung, SEL then sought
money from Samsung and others by threatening them with
litigation over these fraudulently obtained patents. Put
another way, Samsung claims that SEL defrauded the PTO,
1 Section 1962(a) and (c) state:
(a) It shall be unlawful for any person who has received any
income derived, directly or indirectly, from a pattern of
racketeering activity ... to use or invest, directly or indirectly,
any part of such income, or the proceeds of such income, in
acquisition of any interest in, or the establishment or operation
of, any enterprise which is engaged in, or the activities of which
affect, interstate or foreign commerce.
(c) It shall be unlawful for any person employed by or associated
with any enterprise engaged in, or the activities of which affect,
interstate or foreign commerce, to conduct or participate,
directly or indirectly, in the conduct of such enterprise's affairs
through a pattern of racketeering activity[.]
2 See 18 U.S.C. §§ 1341, 1343.
39a
but the intended, albeit indirect, victim of the fraud is
Samsung.
Mail and wire fraud are both predicate acts of
racketeering activity for RICO purposes. 18 U.S.C. §
1961(1). However, SEL argues that the PTO cannot be
“defrauded” of approval of patent applications under the
federal mail and wire fraud statutes. Specifically, SEL
argues that the PTO does not lose money or property when it
grants a patent, therefore, in granting a patent, the PTO
cannot be the victim of mail or wire fraud.
In support, SEL cites Mylan Lab., Inc. v. Akzo, N.V.,
770 F. Supp. 1053, 1071-73 (D.Md.1991). In that case, the
RICO plaintiff alleged that the defendants committed
predicate acts of fraud against the Food and Drug
Administration (“FDA”) in obtaining FDA approval of their
abbreviated new drug applications (“ANDAs”). The District
of Maryland ruled that an unissued license is not property in
the government’s hands for fraud purposes, therefore, the
defendants’ conduct before the FDA did not amount to
predicate acts under RICO.3 Mylan Lab., Inc. v. Akzo, N.V.,
770 F. Supp. at 1072-73. Although the Fourth Circuit
reversed a related decision in Mylan Lab., Inc. v. Matkari,
supra, it expressly stated “[W]e affirm a ruling that precludes
Mylan from relying on, as its sole basis for the predicate acts
3 The court declined to follow the Third Circuit’s decision on this issue
in United States v. Martinez, 905 F.2d 709, 715 (3rd Cir.1990), and
instead followed the decisions of the First, Second, Sixth, Seventh,
Eighth and Ninth Circuits. Mylan Lab., Inc. v. Akzo, N.V., 770 F. Supp.
at 1072 (citing, e.g., McEvoy Trave: Bureau, Inc. v. Heritage Travel, Inc.,
904 F.2d 786, 792-93 (ist Cir.1990), United States v. Schwartz, 924 F.2d
410, 417 (2nd Cir.1991), United States v. Murphy, 836 F.2d 248, 254 (6th
Cir.1988), Toulabi v. United States, 875 F.2d 122, 125 (7th Cir.1989),
United States v. Granberry, 908 F.2d 278, 280 (8th Cir.1990), United
States v. Kato, 878 F.2d 267, 268-69 (9th Cir.1989)).
40a
in its RICO counts, the theory that the FDA was defrauded
out of its ANDA approvals within the meaning of the mail
and wire fraud statutes.” Mylan Lab., Inc. v. Matkari, 7 F.3d
at 1137.
In response, SEL argues that Mylan Lab., Inc. v.
Akzo, N.V. and the cases it cites are distinguishable because
they involved licenses, not patents, and patents involve
valuable property interests. In addition, Samsung argues that
by deceiving the PTO, SEL deprived Samsung and others of
the “intangible right of honest services” in violation of the
mail fraud statute. See 18 U.S.C. § 1346.
Samsung cites no cases which indicate that approval
of a patent application by the PTO should be treated
differently than approval of an ANDA by the FDA. In both
cases, the United States confers certain rights, but it does not
forfeit anything. Just as the FDA does not lose money or
property when it grants a license, the PTO does not lose
money or property when it issues a patent. In addition,
Samsung makes no allegations and no evidence indicates that
the PTO provided anything less than honest services or that
SEL intended for them to provide dishonest services.
Furthermore, there is no claim by Samsung that it had an
intangible right to SEL’s honest services.
Because SEL’s alleged conduct before the PTO does
not violate the federal mail and wire fraud statutes, that
conduct cannot satisfy the predicate acts requirement under
RICO. If such conduct could properly be considered
predicate acts, then nearly every inequitable conduct claim in
a patent case could be brought as a RICO claim. However,
the Patent Act imposes a severe penalty for those who
mislead or wrongfully withhold information in an attempt to
obtain a patent: all claims in the patent will be rendered
unenforceable. See J.P. Stevens & Co., Inc. v. Lex Tex, Lid.,
4la
Inc., 747 F.2d 1553, 1561 (Fed. Cir. 1984). Additionally, if
Samsung can prove its allegations, not only will the patents
at issue be rendered unenforceable, but Samsung may be
entitled to attommey’s fees pursuant to 35 U.S.C. Section 285.
Through these provisions, the Patent Act provides
appropriate remedies for the type of misconduct from which
Samsung seeks to recover in its RICO claims.
In its counterclaim, Samsung alleges that SEL’s
fraudulent acts also include “numerous use of mail and/or
wire fraud on Samsung and others [.]” Samsung’s Amended
Answer and Counterclaim, 4 117. However, while the
evidence indicates that some companies own licenses to the
relevant patents, Samsung has not provided evidence that
SEL has committed mail or wire fraud with respect to
Samsung or others. Rather, Samsung relies on the theory
that SEL’s alleged fraud on the PTO satisfies the predicate
acts requirement. Because Samsung provides no evidence on
which a jury could reasonably find the predicate acts
necessary to sustain a RICO claim, SEL is entitled to
summary judgment on this issue.
The New Jersey RICO statute is modeled after the
federal statute, State v. Ball, 141 N.J. 142, 661 A.2d 251, 258
(1995), and the relevant sections, 2C:41-2(a) and (c), require
proof of a pattern of racketeering activity. Samsung relies on
the same predicate acts in support of its New Jersey RICO
claim. Because those acts do not support a federal RICO
violation, they fail to support a New Jersey RICO violation.
In addition, Samsung fails to satisfy the “enterprise”
element of Section 1962(c). Samsung argues that the RICO
enterprise consists of SEL, Dr Shunpei Yamazaki (SEL’s
president), and Gerald Ferguson (SEL’s patent attorney).
However, the Fourth Circuit has ruled that under Section
1962(c), the RICO enterprise and the defendant must be
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distinct. Palmetto State Med. Ctr., Inc. v. Operation Lifeline,
117 F.3d 142, 148 (4th Cir.1997).
Samsung contends that SEL, Yamazaki, and
Ferguson should be considered separate entities because each
had a duty to the PTO, and Yamazaki and Ferguson
committed independent acts of fraud on the PTO. However,
“(Bly alleging a RICO enterprise that consists merely of a
corporate defendant associated with its own employees or
agents carrying on the regular affairs of the defendant, the
distinctness requirement may not be _ circumvented.”
Riverwoods Chappaqua Corp. v. Marine Midland Bank,
N.A., 30 F.3d 339, 344 (2nd Cir.1994) (citations omitted); see
also Discon, Inc. v. NYNEX Corp., 93 F.3d 1055, 1063 (2nd
Cir.i996)(attomeys acting on behalf of corporation are
agents under Riverwoods Chappaqua Corp.).
SEL generates its income by obtaining and licensing
patents. It does not manufacture or distribute any products.
Samsung does not argue that Yamazaki or Ferguson acted
beyond the scope of their agency when they committed the
alleged misconduct. Therefore, because the RICO enterprise
is not distinct from the RICO defendant in this case, SEL is
entitled to summary judgment on Samsung’s Section 1962(c)
claims.
For these reasons, Samsung fails to make a showing
sufficient to establish the existence of the essential elements
of its RICO claims. Accordingly, SEL’s Motion for
Summary Judgment on Samsung’s Racketeering
Counterclaims is GRANTED.
An appropriate Order granting summary judgment in
favor of SEL on Counts Six, Seven, Eight, and Nine of
Samsung’s counterclaim shall issue.
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ORDER
In accordance with the accompanying Memorandum
Opinion, it is hereby Ordered that:
1) Plaintiff Semiconductor Energy Laboratory
Co., Ltd.’s Motion for Summary Judgment on
Defendants Samsung Electronics Company,
Samsung Electronics America, and Samsung
Semiconductor, Inc.’s RICO Counterclaim is
GRANTED as to Counts Six, Seven, Eight,
and Nine; and
2) the Clerk shall forward copies of this Order
and accompanying Memorandum Opinion to
all counsel of record.
APPENDIX G
United States District Court, E.D. Virginia,
Alexandria Division.
C.A. No. 96-1460-A.
SEMICONDUCTOR ENERGY
LABORATORY CO., LTD.,
Plaintiff,
Vv.
SAMSUNG ELECTRONICS CoO., LTD.,
SAMSUNG ELECTRONICS AMERICA, INC., AND
SAMSUNG SEMICONDUCTOR, INC.,
Defendants.
April 15, 1998.
MEMORANDUM OPINION
ELLIS, District Judge.
In this patent infringement action, plaintiff
Semiconductor Energy Laboratory Co. (“SEL”) alleges that |
defendants Samsung Electronics, Samsung Electronics
America, and Samsung Semiconductor, (collectively
“Samsung”) made or sold active matrix display units that
infringe SEL’s U.S. Patent No. 5,543,636 (“the ‘636
patent”). Among its defenses to SEL’s charge of
infringement, Samsung alleges that the ‘636 patent is
unenforceable owing to SEL’s inequitable conduct before the
Patent and Trademark Office (“PTO”). Between March 17,
1998 and April 3, 1998, a seven-day bench trial was held on
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Samsung’s affirmative defense of inequitable conduct, during
which time the Court heard fact and expert opinion testimony
from several witnesses, admitted into evidence numerous
exhibits, and considered the parties’ written and oral
arguments. This Memorandum Opinion sets forth the
Court’s findings of fact and conclusions of law, as announced
from the bench pursuant to Fed. R. Civ. P. 52(a). But, to
begin with and before listing the detailed findings and
conclusions, it is useful as context to describe briefly the
parties, the pertinent patents, and the general law of
inequitable conduct. Indeed, the settled legal principles of
the doctrine of inequitable conduct are the lens through
which the factual record must be examined and weighed.
SEL is a Japanese research and development
company that specializes in semiconductor technology. Over
the past eighteen years, SEL has filed over 5,000 patent
applications worldwide, and has been awarded approximately
1,500 U.S. and foreign patents for its inventions. Dr.
Shunpei Yamazaki, the president and majority shareholder of
SEL, is the inventor or co-inventor on most of SEL’s patents,
including the ‘636 patent.
SEL filed its application for the ‘636 patent, titled
“Insulated Gate Field Effect Transistor,” on June 7, 1995,
and the patent issued on August 6, 1996. SEL is the owner
of the ‘636 patent. The asserted claims of the ‘636 patent
(claims 1-3 and 5) are generally directed to a thin film
transistor (“TFT”), a type of insulated gate field effect
transistor (“IGFET”) used in active matrix display units.
Active matrix displays, which are commonly used as screens
in laptop computers, have thousands of pixels that create a
picture or image. The pixels are turned on and off by TFT’s.
The invention claimed in the ‘636 patent is a TFT with a
46a
s¢miconductor layer made of intrinsic amorphous silicon
having a channel region sandwiched between a silicon nitride
gate insulator and another insulator, wherein the
Concentration of impurities (e.g., carbon and oxygen) in the
channel region are 5 x 10'* atoms/cm’ or less. It is the
Combination of the specific structure together with the low
impurity levels that constitutes the invention.
In October 1996, SEL brought this infringement
action against the Samsung defendants, a group of companies
engaged, inter alia, in the manufacture and sale of active
matrix displays as well as laptop computers containing active
matrix displays. Specifically, SEL’s complaint alleges that
the active matrix display units made and sold by Samsung
infringe the ‘636 patent. Initially, SEL’s complaint also
included claims for infringement of U.S. Patent Nos. 5, 349,
204 (“the ‘204 patent”) and 5,521,400 (“the ‘400 patent”).
However, on March 4, 1998, an agreed order was entered
withdrawing the ‘204 and the ‘400 patents from the action,
thereby leaving the ‘636 patent as the sole remaining
Patent-in-suit.
Samsung alleges, as an affirmative defense, that the
‘636 patent is unenforceable owing to SEL’s inequitable
Conduct before the PTO in connection with three separate
Patent applications: (i) the application for the ‘636 patent
itself; (ii) the application for U.S. Patent No. 5,315,132 (“the
*132 patent”); and (iii) the application for the ‘204 patent.
The relationship of these patents to each other is
Pertinent to the disposition of the issue at bar. In this regard,
the genealogy of the ‘636 and ‘132 patents is well illustrated
in SEL’s Exhibit No. 432, which is attached to this
Memorandum Opinion as an appendix. In essence, the ‘132
Patent is antecedent to, in the direct priority chain of the ‘636
Patent. Specifically, the ‘636 patent resulted from
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continuation and divisional applications from the application
that issued as the ‘132 patent. The priority date of the ‘636
patent thus relies on the chain of applications that includes
the ‘132 patent. Further, because the subject matter of the
‘636 patent is so closely related to the ‘132 patent, a terminal
disclaimer was filed with respect to the ‘636 patent, giving it
the expiration date of the ‘132 patent.! Both the ‘132 and the
‘636 patents rely upon the May 18, 1984 filing date for
SEL’s Japanese laid-open Application No. 59-100250 (“the
‘250 application”), which has a “one-to-one” relationship
with both the ‘132 and the ‘636 patents. Both patents have
the same inventor (Dr. Yamazaki), owner (SEL), disclosure,
specification, and title. The ‘132 patent issued on May 24,
1994, resulting from an application that was filed on
December 8, 1992.
The ‘204 patent is not a part of the ‘250
application-‘132-°636 chain. Yet, like the ‘636 patent, the
‘204 patent claims an invention related to low levels of
impurities, contains similar prior art references, and was
prosecuted at roughly the same time as the ‘636 patent.
Specifically, the ‘204 patent issued on September 20, 1994,
based on an application filed on December 7, 1993.
In support of its inequitable conduct defense,
Samsung alleges that SEL made deliberate, material
misrepresentations to, and withheld material prior art
references from, the PTO during its prosecutions of these
| In this regard, the ‘132 patent also claims a TFT with the same low
levels of impurities as are claimed in the ‘636 patent. As Dr. Yamazaki
testified during the hearing, the “essential nature of the [636 & ‘132]
invention{s]” is the same. The difference between the two patents is that
the asserted claims of the ‘636 patent are narrower than the claims of the
‘132 patent. For example, the ‘132 patent is not limited to an IGFET
with a silicon nitride gate, or an intrinsic silicon layer, while the claims of
the ‘636 patent are so limited.
48a
three applications. The specifics of these allegations for each
patent are set forth as a preface to the findings for that patent.
In essence, Samsung argues that SEL’s misconduct during
each of these three patent prosecutions is sufficient to render
all of the claims of the ‘636 patent unenforceable for the life
of the patent.
It is fundamental that ali applicants for patents have a
duty to prosecute patent applications in the PTO with candor,
good faith, and honesty. See Precision Instrument Mfg. Co.
v. Automotive Maintenance Mach. Co., 324 U.S. 806, 818, 65
S.Ct. 993, 89 L.Ed. 1381 (1945). The vital importance of
this duty cannot be overstated. Without it, the edifice of
patent law cannot stand. Indeed, the cornerstone
presumption of an issued patent’s validity, and the placement
of a heavy burden on the infringer to show invalidity, both
rest on the proper fulfillment of this duty.
A breach of this duty of candor, good faith, and
honesty constitutes inequitable conduct,? and renders all
claims of the patent involved unenforceable. See Molins
PLC v. Textron, Inc., 48 F.3d 1172, 1178 (Fed. Cir. 1995).
And inequitable conduct’ includes “affirmative
misrepresentation of a material fact, failure to disclose
material information, or submission of false material
information, coupled with an intent to deceive.” Jd. The
party raising the affirmative defense of inequitable conduct
must offer clear and convincing evidence that the conduct is
2 — Inequitable conduct is simply “the unclean hands doctrine applied to
particular conduct before the PTO.” Consolidated Aluminum Corp. v.
Foseco Int'l Lid., 910 F.2d 804, 812 (Fed. Cir. 1990)
49a
both material and intended. See id. More specifically, the
doctrine of inequitable conduct requires the trial court to
undertake a two-step analysis. See Halliburton Co. v.
Schlumberger Tech. Corp., 925 F.2d 1435, 1439 (Fed. Cir.
1991). First, the court must discern whether the withheld
references or misrepresentations satisfy a threshold level of
materiality. See id. The court must also determine whether
the applicant’s conduct in this regard satisfies a threshold
showing of intent to mislead. See id.4 Next, assuming
satisfaction of the thresholds, “the trial court must balance
materiality and intent.... The more material the omission [or
misrepresentation], the less culpable the intent required, and
vice versa.” Jd. Finally, an equitable judgment must be
made that, “in light of all the particular circumstances, the
conduct of the patentee is so culpable that its patent should
not be enforced.” LaBounty Mfg., Inc. v. United States Int'l
Trade Comm'n, 958 F.2d 1066, 1070 (Fed. Cir. 1992).
Materiality is defined at 37 C.F.R. § 1.56 (Rule 56),
and, as the Federal Circuit teaches, this is the starting point
3 Clear and convincing evidence is evidence “which proves in the
mind of the trier of fact ‘an abiding convictio: that the truth of [the]
factual contentions [is] “highly probable.” Intl Corp. v. United States
Int'l Trade Comm'n, 946 F.2d 821, 830 (F:d. Cir. 1991) (quoting
Colorado v. New Mexico, 467 U.S. 310, 316, 104 S.Ct. 2433, 81 L.Ed.2d
247 (1984)).
4 It is worth noting that a finding of gross negligence itself is
insufficient to satisfy the intent threshold. See Kingsdown Med.
Consultants, Lid. v. Hollister Inc., 863 F.2d 867, 876 (Fed. Cir. 1988). At
the same time however, the precise content of the intent “threshold”
remains essentially undefined. In any event, the defense of inequitable
conduct will not succeed in rendering a patent unenforceable unless it is
shown by clear and convincing evidence that the offending conduct was
material and done with an intent to deceive.
5 See Critikon, Inc. v. Becton Dickinson Vascular Access, Inc., 120
F.3d 1253, 1257 (Fed. Cir. 1997).
50a
in the materiality analysis. Thus, since 1992, Rule 56 has
provided, in pertinent part, as follows:
information is material to patentability when it
is not cumulative to information already of
6 Prior to the 1992 amendment, Rule 56 defined information as
material when “there is a substantial likelihood that a reasonable
examiner would consider it important in deciding whether to allow the
application to issue as a patent.” 37 C.F.R. § 1.56 (1989). The Federal
Circuit has not discussed the meaning of the new Rule 56, which appears
narrower, i.e., less information is defined as material, than the former
version of Rule 56. Nevertheless, the new (1992) version of Rule 56 does
not purport to alter the previously-settled principle that a “but for” test is
inappropriate in determinations of materiality. See Merck & Co., Inc. v.
Danbury Pharmacal, Inc., 873 F.2d 1418, 1421 (Fed. Cir. 1989)
(rejecting a “but for” standard of materiality under pre-1992 Rule 56). In
other words, materiality does not require a finding that “but for” the
inequitable conduct, the patent would not have issued.
Also worth noting is that the new version of Rule 56 does not refer to a
hypothetical reasonable examiner or to any standard for an examiner’s
competence. Application of the new rule does not require the use of any
such standard. In any event, it is clear that patent examiners are not
presumed to be omniscient, i.e., to know all the prior art, together with its
relevance and significance. Were this not so, there would be no need for
a duty of disclosure of prior art. But this duty is vital given that patent
prosecution proceedings are typically ex parte, and examiners, while
technically skilled, are not omniscient. Consistent with this, examiners
are properly characterized as “quasi-judicial officials trained in the law
and presumed to ‘have some expertise in interpreting the [prior art]
references and to be familiar from their work with the level of skill in the
art and whose duty it is to issue only valid patents.“ Markman v.
Westview Instruments, Inc., 52 F.3d 967, 986 (Fed. Cir. 1995) (quoting
American Hoist & Derrick Co. v. Sowa & Sons, Inc., 725 F.2d 1350,
1359 (Fed. Cir. 1984)). Thus, examiners are skilled in the art insofar as
they are technically competent to understand information and references
in some technical or scientific field, but they are not of ordinary skill in
the art to the extent that this might imply that they are aware of all the
pertinent prior art.
Sla
record or being made of record in the
application, and
(1) It establishes, by itself or in combination
with other information, a prima facie case of
unpatentability of a claim;’ or
(2) It refutes, or is inconsistent with, a
position the applicant takes in:
(i) Opposing an argument of unpatentability
relied on by the Office, or
(ii) Asserting an argument of patentability.
Thus, under the new Rule 56, materiality is phrased in terms
of whether a misrepresentation, if corrected, or an omitted
reference, if disclosed, would, itself or together with other
information, give rise to a prima facie (i.e., rebuttable) case
of unpatentability. If so, the omitted reference or
misrepresentation is material. But this is not the only test of
materiality. The omitted reference or misrepresentation may
also be material if it refutes or is inconsistent with the
applicant’s patentability arguments.
Whether a withheld reference or omitted information
is cumulative plays a prominent role in this case. Thus, it is
important to note that while cumulative information is not
material under Rule 56, a withheld reference may be highly
7 Rule 56 further provides that “[a] prima facie case of unpatentability
is established when the information compels a conclusion that a claim is
unpatentable under the preponderance of evidence, burden- of-proof
standard, giving each term in the claim its broadest reasonable
construction consistent with the specification, and before any
consideration is given to evidence which may be submitted in an attempt
to establish a contrary conclusion of patentability.” 37 C.F.R. § 1.56(b).
52a
material when it discloses a more complete combination of
relevant features, even if those features are before the patent
examiner in other references. See, e.g., Molins, 48 F.3d at
1180; LaBounty, 958 F.2d at 1075-76; In re Jerabek, 789
F.2d 886, 890 (Fed. Cir. 1986). Thus, where, as here, the
invention is a combination of elements, an undisclosed prior
art reference that contains more of the combined elements
than the disclosed references is not cumulative simply
because various elements of the invention appear in other
disclosed references.
Inequitable conduct requires more than mere
materiality of the withheld or misrepresented reference or
information; it also requires an intent to act inequitably. And
no presumption of intent to deceive arises merely from the
materiality of an undisclosed reference. See Halliburton, 925
F.2d 1435, 1442. Even gross negligence “does not of itself
justify an inference of intent to deceive.” Jd. Rather, such
conduct “can support an inference of intent only when,
‘viewed in light of all the evidence, including evidence
indicative of good faith,’ the conduct is culpable enough ‘to
require a finding of intent to deceive.’ “ Jd. (quoting
Kingsdown, 863 F.2d at 876). Yet, it is also true that a
patentee facing a “high level of materiality and clear proof
that it knew or should have known of that materiality, can
expect to find it difficult to establish ‘subjective good faith’
sufficient to prevent the drawing of an inference of intent to
mislead.” §Critikon, 120 F.3d at 1257. In such
circumstances, a “mere denial of intent to mislead (which
would defeat every effort to establish inequitable conduct)
will not suffice.” Jd.
The test, then, requires a consideration of, and a
judgment on, the totality of the circumstances. In the words
of the Federal Circuit, courts must determine whether the
conduct “‘in its totality manifests a sufficiently culpable state
SE OIE IE OIA Sa i i a li peer
* . . 70
a I i
53a
of mind to warrant a determination that it was inequitable.”
Molins, 48 F.3d at 1181. This sensible formulation
recognizes that direct proof of intent is rarely available and
that it is impossible to scrutinize directly the — of the
human mind.
It_is against these general legal principles that
Samsung’s claims of inequitable conduct must be assessed.
Thus, analysis of Samsung’s claims will proceed by an initial
assessment as to the materiality of any withheld or
mischaracterized information during SEL’s prosecution of
the ‘636, ‘132, and ‘204 patent applications. An assessment
of SEL’s intent will follow.
Il.
A. The ‘636 Patent Application
Samsung alleges two specific instances of inequitable
conduct by SEL during its prosecution of the ‘636 patent.
First, SEL submitted to the PTO as prior art the Japanese
laid-open Application No. 56-135968, assigned to Cannon
K.K. (“the Canon ‘968 application”), which is also directed
to TFT’s. Specifically, SEL submitted the full 29-page
Japanese language version and a one-page partial English
translation of the Canon ‘968 application. Samsung contends
that by highlighting, through translation, only one of the
many elements in the Canon reference that was relevant to
the ‘636 application, and by leaving the others untranslated,
SEL deliberately mischaracterized the importance of Canon
and attempted to conceal material information from the
examiner. Second, SEL also revealed as prior art a 1983
article by Dr. C.C. Tsai titled “Amorphous Si Prepared in a
UHV Plasma Deposition System,” which teaches the
reduction of impurities in amorphous silicon to improve
performance in electronic devices. SEL distinguished the
54a
Tsai article before the PTO by claiming that it applied
primarily to solar cells and not TFT’s, and by stating that the
current in the devices discussed in the article runs in a
perpendicular direction, while the current in the type of
TFT’s referred to in the ‘636 patent runs in a parallel
direction. Samsung alleges that SEL’s statements in this
regard were disingenuous attempts to distinguish the Tsai
article from the ‘636 patent application, and that they were
contrary to its own knowledge and inconsistent with its own
position in other patent applications.
1. The Canon ‘968 Application
On November 15, 1995, in connection with its ‘636
patent application, SEL disclosed approximately 90
references of prior art to the PTO, including the Canon ‘968
application. SEL submitted the full 29-page Japanese
language version of the Canon ‘968 application to the PTO,
but not a full English translation. Instead, it submitted a
one-page document titled “Partial Translation of JP-Laid
Open 56-135968,” which selectively translated for the PTO
sections of the application appearing both before and after
the untranslated portions of the Canon ‘968 application. Dr.
Yamazaki testified that the partial translation had already
been prepared in connection with another patent application,
and that he made the decision that only certain portions of the
Canon ‘968 application should be translated and submitted to
the PTO together with the full Japanese language version in-
connection with the ‘636 application.
The partially translated portion of the Canon
reference discloses a silicon nitride gate insulator, one of the
elements of the asserted claims of the ‘636 patent. Dr.
Yamazaki testified that at the time he submitted the partially
translated Canon ‘968 reference, the silicon nitride gate
insulator was the only disclosure in the Canon ‘968
PEI. PONG TE
SANSA OI: DOIG LE Se TP ERTS
55a
application that he believed to be relevant to the ‘636 patent.
Indeed, when he disclosed the Canon ‘968 application to the
PTO, he identified its relevance only as “disclos[ing] the use
of silicon nitride for a gate insulating layer of a thin film
transistor.”
Yet, this was not accurate; the untranslated portions
of the Canon ‘968 application were also relevant to a
consideration of the patentability of the invention claimed in
the ‘636 patent. In general, these portions were (a) the
frequent admonitions to prevent or limit atmospheric
impurities in semiconductor materials, which provide an
express suggestion to employ teachings such as those found
in the Tsai article or in the ‘423 or the ‘488 applications? to
reduce carbon, oxygen and nitrogen impurities below the
levels claimed in the ‘636 patent, and (b) a description of the
same structure for a thin film transistor as is described in the
‘636 patent. More specifically, the untranslated portion of the
Canon ‘968 teaches avoiding exposure of the channel region
to impurities resulting from air or oxygen. Further, the
untranslated portion teaches the cleaning of the substrate by
etching part of it away, prior to depositing the amorphous
silicon. Further, it teaches that the substrate can introduce
impurities, and that washing alone is insufficient to avoid
impurities. Although other prior art disclosed by SEL during
8 In this regard, and indeed generally, the Court credits the testimony
of Samsung’s witnesses Dr. Fonash, Dr. Tsai, and Dr. Meyerson over
SEL’s witnesses Dr. Lucovsky and Dr. Yamazaki whenever there is a
conflict.
9 That is, SEL’s Japanese laid-open Application Nos. 59-35423 (“the
423 application”) and 59-35488 (“the ‘488 application”), which were
laid-open (published in Japan) on February 27, 1984.
56a
the prosecution of the ‘636 patent, such as the Tsai article,!°
teach avoidance of impurities, none disclose or teach the
processing sequences useful in avoiding impurities, such as
etching the substrate. The translated portion of the Canon
‘968 application submitted by SEL to the PTO omitted this
teaching.
It is also significant that the translated portion of the
Canon ‘968 application describes a TFT structure that is
somewhat different from that described in the ‘636 patent,
whereas the structure described in the untranslated portion of
the Canon ‘968 application describes the same structure
found in the ‘636 patent. Thus, the structure described in the
untranslated portion of the Canon ‘968 application has the
same intrinsic semiconductor layer made from amorphous
silicon; the same channel region sandwiched between the
insulators; and (in both the translated and the untranslated
portions), the same silicon nitride gate insulator as claimed in
the ‘636 patent. To be sure, other references cited to the PTO
disclose the various elements described in the ‘636 patent
claims. Yet, no other reference before the examiner
contained as complete a combination of the ‘636 elements as
is disclosed in the untranslated Canon ‘968 application.
Thus, contrary to SEL’s contention, Dr. Fonash’s
testimony convincingly establishes that the untranslated
portions of Canon are not merely cumulative, as they contain
a more complete combination of the elements -- the intrinsic
amorphous silicon, the silicon nitride gate insulator, and the
admonition to avoid impurities -- that are claimed in the ‘636
10 Findings relating both to the nature of the Tsai article and to Dr.
Yamazaki’s and SEL’s knowledge of it are set forth in the following
sections.
Pol Shy
57a
patent itself.!! Dr. Fonash further convincingly testified that
the untranslated portions of the Canon ‘968 application and
the Tsai article, taken together, would disclose a device
having every element of the asserted claims of the ‘636
patent. As Dr. Fonash put it, a fully translated Canon ‘968
application provides a “good blueprint” for making the exact
device described in the ‘636 patent, and additionally provides
the admonition to avoid impurities. The Tsai article,
discussed infra in more detail, discussed amorphous silicon
films with specific low levels of impurities. within the claim
limitations of the ‘636 patent. Thus, Dr. Fonash concluded
that the fully translated Canon ‘968 application, when taken
together with the Tsai article, renders obvious the asserted
claims of the ‘636 patent. Moreover, he concluded that
failing to disclose the untranslated portions of the Canon
application would significantly hinder a patent examiner’s
ability to determine whether the ‘636 patent application was
an unobvious advancement over the prior art. In a grudging
admission of this, Dr. Yamazaki testified during the
inequitable conduct hearing that submitting a complete
translation of the Canon ‘968 application would have been a
“kinder thing” for him to do, and that a full translation
“would be more convenient” for the PTO.
Accordingly, the evidence is clear and convincing
that untranslated portions of the Canon ‘968 application
_ contained information highly material to the prosecution of
the ‘636 patent application as they, together with other
information, establish a prima facie case of unpatentability.
See 37 C.F.R. § 1.56. The evidence is also clear and
convincing that the fully translated Canon ‘968 application
was knowingly withheld from the PTO.
!! Worth noting in this regard is that Dr. Yamazaki acknowledged his
duty to provide the PTO with the prior art references “most similar to” his
claimed invention.
58a
2. The Tsai Article
In the course of prosecuting the application that led to
the issuance of the ‘636 patent, SEL disclosed to the PTO as
prior art a 1983 article by Dr. Tsai titled “Amorphous Si
Prepared in a UHV Plasma Deposition System.” This article
teaches the reduction of impurities in amorphous silicon to
improve performance in electronic devices.
During the prosecution of the ‘636 patent application,
SEL sought to distinguish the Tsai article before the PTO by
suggesting that it applied primarily to solar cells rather than
to TFT’s. Further, SEL argued before the PTO that the Tsai
article was distinguishable in that the electrical current in the
devices discussed in her article runs in a perpendicular
direction, while the electrical current in the TFT’s referred to
in the ‘636 patent runs in a parallel direction. At the
inequitable conduct hearing, SEL, through the testimony of
Dr. Yamazaki, expressed the view that impurities such as
carbon and oxygen affect solar cells differently from TFT’s
and create different problems in the two devices. Thus, SEL
asserted both before the PTO and in the course of this
hearing, that teachings concerning the effects of impurities in
solar cells are not relevant to TFT’s.
The record as a whole discloses that SEL’s efforts to
distinguish the Tsai article before the PTO were neither valid
nor accurate. Thus, Dr. Tsai testified convincingly that her
article, which refers to “large area devices,” would have been
understood by those in the field, both at the time of its
publication and thereafter, to include devices made with
TFT’s as well as solar cells. Dr. Fonash agreed, testifying
that in 1983, at the time the Tsai article was published, he
understood the term “large area device” to include devices
made with TFT’s. Dr. Yamazaki also testified that the current
active matrix display units that utilize TFT’s are large area
59a
devices. In sum, the expert testimony convincingly
establishes that contrary to SEL’s representation to the PTO,
the Tsai article would have been understood by persons of
ordinary skill in the art in 1983 and thereafter to apply not
just to solar cells, but to TFT’s as well.
Record evidence reflects that Dr. Yamazaki, a
distinguished and accomplished solid state physicist, surely
knew this. Thus, his ‘423 and ‘488 Japanese laid-open
applications, which deal mainly with solar cells, expressly
state that the benefits of the lower levels of impurities
described in those applications also apply to “insulated gate
field effect semiconductor device [s]” such as TFT’s. So, as
the ‘423 and the ‘488 laid-open applications reflect, Dr.
Yamazaki recognized by 1984 a clear connection between
solar cells and TFT’s in that the importance of reducing
impurity levels is applicable to both. Moreover, SEL was
prosecuting the ‘400 patent application, one of the original
patents-in-suit, at approximately the same time it was
prosecuting the ‘636 patent application. The ‘400 patent,
which is also directed mainly to solar cells, contains a figure
(figure 9) that illustrates that the invention applies to
insulated gate field effect transistors, as well.
In summary, for the limited purpose of trying to
persuade the examiner that the Tsai article was not material,
SEL adopted a position contrary to its own knowledge, and
inconsistent with its own previously stated position on an
important issue before the PTO. Specifically, in its ‘423,
‘488, and ‘400 patent applications, SEL asserts that its
claimed inventions, which are primarily directed to reducing
impurities in solar cells, are equally applicable to TFT’s. Yet,
in its prosecution of the ‘636 patent application, SEL
distinguished the Tsai article on the basis that its teachings
apply primarily to solar cells, not TFT’s. Thus, contrary to
the clear statements found in the ‘423, ‘488, and ‘400
60a
applications, SEL argued before the PTO, in effect, that
references concerned with the effects of impurities in solar
cells are not germane to a TFT’s patentability. SEL never
revealed this inconsistency to the PTO as required under 37
C.F.R. § 1.56.
Next, convincing expert testimony also contradicts
SEL’s representation to the PTO that the Tsai article is
distinguishable based on the direction of the current. Thus,
Dr. Tsai and Dr. Fonash persuasively testified that it is
irrelevant to the effect of impurities in a device as to whether
current runs perpendicular or parallel. Accordingly, it is
clear from this record that the difference in the direction of
current flow was not a valid basis for distinguishing the Tsai
article from the ‘636 patent application. Moreover, Dr.
Yamazaki, as an accomplished solid state physicist, was
certainly aware that this was a distinction without
significance as well.
Knowledge that the teachings of the Tsai article were
equally applicable to TFT’s was material to the prosecution
of the ‘636 patent application. The expert testimony of Dr.
Fonash clearly established that the Tsai article teaches the
making of amorphous silicon with impurity concentrations in
the amorphous silicon layer within the levels recited in all
claims of the ‘636 patent. The deposition testimony of Dr.
Lucovsky confirms this conclusion. Further, as the testimony
of Dr. Fonash convincingly establishes, the Tsai article, taken
together with the untranslated portions of the Canon ‘968
application, disclose a device having every element of the
asserted claims of the ‘636 patent.'2 Thus, the clear and
12 The Tsai article’s materiality to the ‘636 patent is confirmed by Dr.
Yamazaki’s own January 1995 letter to his licensing agent, in which he
acknowledges the Tsai article as being highly relevant to the ‘132 patent,
which, like the ‘636 patent, is directed to TFT’s, not solar cells.
6la
convincing evidence demonstrates that the Tsai article, taken
together with other information, would give rise to a prima
facie case of unpatentability, and was therefore highly
material to the prosecution of the ‘636 patent application.
Equally clear and convincing
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