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Reasonable Mistakes and Poor Judgment During Prosecution Do Not Amount to Inequitable Conduct

December 22, 2010

Decision icon Decision

Last Month at the Federal Circuit - January 2011

Judges: Lourie, Friedman, Linn (author)

[Appealed from: S.D.N.Y., Senior Judge Griesa]

In Lazare Kaplan International, Inc. v. Photoscribe Technologies, Inc., No. 09-1251 (Fed. Cir. Dec. 22, 2010), the Federal Circuit vacated the district court’s grant of SJ of no literal infringement and the district court’s verdict of noninfringement under the DOE of claims 1 and 7 of U.S. Patent No. 6,476,351 (“the ’351 patent”).  The Court affirmed the district court’s judgments of invalidity and noninfringement of claim 18 of the ’351 patent and also affirmed the district court’s judgment of noninfringement of claims 1, 24, 62, and 70 of U.S. Patent No. 7,010,938 (“the ’938 patent”).  Finally, the Federal Circuit vacated the district court’s findings of inequitable conduct and “exceptional case,” as well as its award of attorneys’ fees.

Lazare Kaplan International, Inc. (“Lazare”) owns the ’351 and ’938 patents, which are directed to the use of a fixed laser to create a series of microscopic spots on the surface of gemstones such as diamonds.  The ’351 patent claims a microinscribing system that has a “rigid frame” supporting the laser, stage, and optical system “in fixed relation, to resist differential movements” and to “increase immunity to vibrational misalignments.”  The ’351 patent also claims a method of microinscribing that includes “controlling the directing” of laser energy based on marking instructions and imaging.

Lazare’s ’938 patent claims microinscribed gemstones that have specified characteristics.  In particular, the patent claims gemstones with laser generated spots, the “positional accuracy” of which is “within about ±1 micron” and the “positional repeatability” of which is “within about 1.0 micron.”  The ’938 patent also claims ranges of depths and widths of each spot on a gemstone, the depths being “less than about 10 microns” and widths being either “less than about 9 microns” or “less than about 12 microns.”

Lazare also owns U.S. Patent No. 4,392,476 (“the ’476 patent”), which is directed to a system for inscribing gemstones that includes a “laser beam generation system,” an “optical system,” and a “table system.”  The ’476 patent is prior art to both the ’351 and ’938 patents. 

In the 1980s Lazare had a commercial embodiment of the ’476 patent made in the form of a machine for inscribing gemstones.  According to a contract for the development of that machine (“the ’476 machine”), it was to include “a rigid base to support a laser, scanner optics, and object fixture with adequate protective covers.”  To prevent vibrations from causing errors during the inscription process, the machine rested on a cushion of compressed air produced by a set of pneumatic legs positioned underneath the machine.

The ’351 patent refers to both the ’476 patent and the ’476 machine.  Neither the ’351 patent nor the ’476 patent explicitly discloses that the ’476 machine included the “rigid base” mentioned above.

Lazare sued Photoscribe Technologies, Inc. (“Photoscribe”) for infringement of the ’351 and ’938 patents.  Lazare asserted that Photoscribe manufactured infringing inscription machines and sold them to parties who used the machines to produce infringing diamonds.  Photoscribe denied the allegations of infringement, asserted that the claims were invalid, and that both the ’351 and ’938 patents were unenforceable due to inequitable conduct.  A jury found that Photoscribe had not infringed any of the asserted claims.  The jury also found that Photoscribe had proven by clear and convincing evidence that claim 18 of the ’351 patent is invalid.

In a subsequent bench trial on inequitable conduct, the district court concluded that Lazare had committed inequitable conduct while prosecuting the ’351 patent by failing to adequately disclose the structure of the ’476 machine to the PTO.  The district court also found that Lazare had engaged in inequitable conduct with respect to the ’938 patent because Lazare did not submit to the PTO a declaration by Lazare demonstrating that the ’476 machine could produce inscriptions with line widths and depths falling within the ranges recited in the claims.  Based on its inequitable conduct findings, the district court held that the case was exceptional under 35 U.S.C. § 285 and awarded the defendants over $6 million in attorneys’ fees. 

Lazare made separate motions for JMOL and for new trials, which the district court denied.  Lazare challenged the district court’s denial of its post-trial motions on a number of grounds.

On appeal, the Federal Circuit found errors in the district court’s construction of claims 1 and 7 of the ’351 patent.  As a result, the Court vacated the district court’s grant of SJ of no literal infringement and its jury verdict of no infringement under the DOE because both were based on an erroneous construction of those claims.

The Federal Circuit affirmed the district court’s verdict of invalidity and noninfringement of claim 18 of the ’351 patent because Lazare failed to show that the district court’s jury instructions amounted to fundamental error and the testimony supporting the district court’s findings was sufficiently corroborated.

The Federal Circuit also affirmed the jury’s verdict of noninfringement of claims 1, 24, 62, and 70 of the ’938 patent because it found that the jury’s verdict was supported by substantial evidence.  The Court reasoned that the jury was free to dismiss the conflicting testimony of Lazare’s experts and rely on testimony offered by Photoscribe.

Further, the Federal Circuit vacated the district court’s finding that the ’351 patent was unenforceable on account of inequitable conduct.  The district court had based its finding of inequitable conduct on Lazare’s failure to disclose the structure of the ’476 machine to the PTO while prosecuting the ’351 patent.  The Court reasoned that, even assuming that information concerning the structure of the ’476 machine was highly material to the prosecution of the ’351 patent erroneously inferred that Lazare’s counsel intended to deceive the PTO by withholding the information.  The Federal Circuit noted that “[c]ounsel provided an explanation for not disclosing the machine, and there is nothing to suggest that the decision to withhold was an attempt to conceal.  At best, the failure to disclose what was believed to be cumulative information was a mistake or exercise of poor judgment that does not support an inference of intent to deceive.”  Slip op. at 34 (citing Abbott Labs. v. Sandoz, Inc., 544 F.3d 1341, 1354 (Fed. Cir. 2008) (“Mistake or negligence, even gross negligence, does not support a ruling of inequitable conduct.”)).

The Federal Circuit also vacated the district court’s holding that the ’938 patent was unenforceable on account of inequitable conduct.  The district court based its finding of inequitable conduct on Lazare’s decision not to submit measurements of the average width and depth of lines inscribed by the ’476 machine to the PTO during prosecution of the ’938 patent.  Lazare’s attorneys explained that they did not submit the declaration because the declaration was cumulative in light of three patents already before the PTO that disclosed the claimed ranges of widths and depths.

The Court reasoned that “[w]hen the attorneys’ explanation for withholding the declaration is considered, it is clear that intent to deceive is not the single most reasonable inference that can be drawn from the evidence.”  Id. at 38 (citing Scanner Techs. Corp. v. ICOS Vision Sys. Corp. N.V., 528 F.3d 1365, 1376 (Fed. Cir. 2008) (“Whenever evidence proffered to show either materiality or intent is susceptible of multiple reasonable inferences, a district court clearly errs in overlooking one inference in favor of another equally reasonable inference.”)).

Because the district court’s exceptional case finding and award of attorneys’ fees were based on a clearly erroneous inequitable conduct ruling, the Federal Circuit vacated them.

Summary authored by Andrew R. Chadeayne, Ph.D., student associate at Finnegan.