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Court Affirms Attorney Fees and Costs Based on Inequitable Conduct and Litigation Misconduct, and Reverses Postjudgment Interest Rate

09-1344
May 12, 2010

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Last Month at the Federal Circuit - June 2010

Judges: Mayer (author), Friedman, Gajarsa (dissenting)

[Appealed from: W.D. Wash., Senior Judge Zilly]

In Taltech Ltd. v. Esquel Enterprises Ltd., No. 09−1344 (Fed. Cir. May 12, 2010), the Federal Circuit affirmed the district court’s award of attorney fees and costs, reversed the district court’s grant of postjudgment interest, and remanded the case for further proceedings. 

U.S. Patent No. 5,568,779 (“the ’779 patent”) is directed to seams including thermal adhesive to reduce pucker.  The ’779 patent is owned by Taltech Limited and is licensed by garment manufacturer and seller TAL Apparel Limited (collectively “TAL”).  In 2004, Esquel Enterprises, Ltd. (“Esquel”), an apparel manufacturer, filed a complaint seeking a DJ of noninfringement.  TAL counterclaimed, alleging infringement. 

After a bench trial, the district court found the inventor of the ’779 patent, John Wong, had engaged in inequitable conduct by not disclosing to the PTO a raincoat seam that included heat−fusible adhesive tape (“undisclosed raincoat seam” or “URS”) and by misrepresenting a double top−stitch seam previously made and sold by TAL.  Based on these findings and a finding of litigation misconduct, the district court declared the case exceptional under 35 U.S.C. § 285 and awarded Esquel attorney fees and costs in a July 13, 2007, final judgment. 

TAL appealed, and the Federal Circuit vacated the inequitable conduct determination, vacated the award of attorney fees and costs, and remanded the case for the district court to determine if the URS was cumulative to a German patent to Robers (“Robers”).  On remand, the district court found that the URS was not cumulative to Robers, stating that its three reasons for declaring the case exceptional (failure to disclose the URS, misrepresentation of the double top−stitch seam, and abusive litigation tactics) were separate and independent bases for the finding.  The district court entered a supplemental final judgment that imposed interest from the July 13, 2007, judgment.  TAL appealed both the exceptional case finding and the district court’s denial of TAL’s motion that the judgment specify an interest rate from the date of the new judgment.

On appeal, the Federal Circuit began by examining the district court’s reasons for finding the URS not cumulative to Robers.  First, the Court considered the district court’s reasoning that, by using two words having different meanings than those used in the translation that Esquel presented at trial, TAL’s translation of Robers that was before the examiner was so inadequate that the examiner would not have understood Robers to teach anything material to the claims of the ’779 patent.  TAL argued that the district court erred in striking a comparison of the URS and Robers to the ’779 patent claims that illustrated Robers’s disclosure of more claim elements than the URS.  The Federal Circuit concluded that the district court’s analysis of the differences between the two translations obviated the need for the URS−Robers comparison.

Next, the Court considered the district court’s reliance on the URS’s disclosure of an armhole seam, which was relevant to dependent claims of TAL’s application, while Robers disclosed only a closure seam.  TAL argued on appeal that the district court inappropriately narrowed the disclosure of Robers by not also applying Robers to armholes.  The Federal Circuit rejected TAL’s arguments and found that TAL’s own findings of fact advocated against Robers’s applicability to armholes.  The Federal Circuit further found the district court’s conclusion that the URS disclosed an armhole was supported by the evidence, and the Federal Circuit found the URS noncumulative because Robers is limited to closure seams. 

Third, according to the district court, the URS incorporated Vilene SL33, the adjudicated best mode for the ’779 patent, while Robers only disclosed a generic thermoplastic component.  The Federal Circuit found that an examiner would have found Robers’s teaching of a Vilene SL33/armhole combination important and noncumulative because certain dependent claims of the ’779 patent included polyamide, of which Vilene SL33 is an example, and the specification pointed out difficulties with seam pucker specifically occurring in armhole seams.  Further, the Federal Circuit reasoned that TAL’s arguments that the URS’s Vilene SL33 was cumulative to the teachings of Robers were negated by TAL’s previous arguments that Robers was distinguishable from the claims of the ’779 patent. 

The Federal Circuit also found that the district court did not err in concluding that TAL acted with the requisite deceptive intent in failing to disclose the URS, since intent does not require direct evidence but can be inferred from indirect and circumstantial evidence.  The Court noted that TAL failed to disclose the URS during prosecution, even though the URS more closely approximated a dress shirt seam than seams TAL did disclose during prosecution.  The Court also noted that TAL’s failure to disclose the URS during prosecution was consistent with TAL’s nondisclosure of the Vilene SL33 best mode.  Thus, according to the Federal Circuit, the district court could infer that TAL acted with deceptive intent.  The Court also found that there was no evidence of good faith to counter the evidence of intent, and found TAL’s argument that Wong voluntarily disclosed the existence of the URS unconvincing, as Wong’s disclosure took place at his deposition after the ’779 patent issued.  The Federal Circuit concluded that the district court did not abuse its discretion in finding inequitable conduct based on the nondisclosure of the URS.

Next, the Federal Circuit turned to TAL’s misrepresentation of the double top−stitch seam as an independent ground for the district court’s finding of an exceptional case.  Specifically, TAL withheld that five percent of dress shirts sold in the United States by TAL Apparel feature two top stitches in the armhole seam and withheld that five to six percent of the dress shirts sold by TAL Apparel in the early 1990s had overlock stitches.  The Federal Circuit found that the district court did not err in finding the withheld information material because the information refuted statements TAL made to the PTO about the unacceptability of using two top stitches and overlock stitches.  According to the Federal Circuit, TAL’s assertion of “unequivocal untruths” about a reference, coupled with presentation of the reference, in order to minimize the reference’s impact on the examiner, showed TAL’s intent to deceive.  Slip op. at 14.  The Court also found that the prosecuting attorney had made intentionally ambiguous statements to the PTO about when Wong became aware of the double top−stitch seam.  In sum, the Federal Circuit found that there was no clear error in the district court’s finding of intent.

The Federal Circuit next addressed the district court’s finding of an exceptional case based on abusive litigation tactics.  In particular, TAL had dismissed its damages claim after Esquel conducted discovery and prepared a defense; waived its jury request only weeks before trial and after Esquel had extensively prepared; voluntarily dismissed with prejudice, in the middle of trial, five of its claims of infringement in order to avoid responding to Esquel’s motion for entry of judgment pursuant to Fed. R. Civ. P. 52(c); withdrew an ITC complaint shortly before the hearing began; and engaged in similar tactics on remand.  The Federal Circuit found sufficient evidence in the record for the district court to have concluded that trial misconduct occurred, noting that “it ill behooves an appellate court to overrule a trial judge concerning litigation misconduct when the litigation occurred in front of the trial judge, not the appellate court.”  Slip op. at 15−16 (quoting Nilssen v. Osram Sylvania, Inc., 528 F.3d 1352, 1359 (Fed. Cir. 2008)).

The Federal Circuit turned to the law of the Ninth Circuit for its review of the interest award.  According to the Ninth Circuit, under Kaiser Aluminum & Chemical Corp. v. Bonjorno, 494 U.S. 827 (1990),
“post−judgment interest may run only from the date of a judgment later determined to be supported by the evidence.  It may not run from a legally insufficient judgment.”  Planned Parenthood v. Am. Coalition of Life Activists, 518 F.3d 1013, 1021 (9th Cir. 2008).  TAL argued that the new judgment (.58% interest rate) is the only legally sufficient judgment, while Esquel argued for the July 13, 2007, judgment (4.99% interest rate).  The Federal Circuit agreed with TAL, finding the earlier judgment legally insufficient since the Federal Circuit had previously vacated the inequitable conduct determination in that judgment. 

Judge Gajarsa dissented from the majority opinion.  According to Judge Gajarsa, “This case exemplifies the ongoing pandemic of baseless inequitable conduct charges that pervade our patent system.”  Gajarsa Dissent at 1.  Judge Gajarsa believed the district court’s inequitable conduct ruling contained no supportable finding of intent, limited materiality findings, and wholly ignored evidence of good faith. 

Judge Gajarsa believed the district court’s cumulativeness inquiry for the URS was flawed.  According to Judge Gajarsa, Robers is more relevant to the claims of the ’779 patent than the URS and discloses more claim elements than the URS.  Judge Gajarsa also believed the translations presented by TAL and Esquel differed by only merely minor variations and the district court erroneously limited the teachings of the URS.  In Judge Gajarsa’s view, no reasonable examiner would have found the URS’s disclosure of Vilene SL33 material since the pending claims did not require Vilene SL33 but instead required polyamides.  Further, Judge Gajarsa believed that the representations made during prosecution about the acceptability of the double top−stitch seam and overlock stitches were immaterial to patentability since the claims did not require these particular stitches.

Although Judge Gajarsa did not believe it necessary to reach intent since he did not find the representations or the URS material, Judge Gajarsa also believed the district court’s finding of inferred intent was not supported by clear and convincing evidence.  According to Judge Gajarsa, the alleged inadequacy of the translation of Robers was insignificant, the statements by the prosecuting attorney about when Wong became aware of the double top−stitch seam were not misleading, and the district court failed to take into account Wong’s good faith in introducing the URS into the record.  Thus, Judge Gajarsa believed the inequitable conduct finding should be reversed, along with the finding of exceptionality and the award of attorney fees.

 

 

 

 

 

 

Summary authored by Kay H. Hill, Esq.