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When Based upon Conduct Pertaining to Inventorship, Attorney Fees May Be Awarded Without Determining Inventorship

June 11, 2010

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Last Month At The Federal Circuit - July 2010

Judges: Rader (concurring), Archer, Gajarsa (author)

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

In Advanced Magnetic Closures, Inc. v. Rome Fastener Corp., Nos. 09-1102, -1118 (Fed. Cir. June 11, 2010), the Federal Circuit affirmed the district court’s holding that U.S. Patent No. 5,572,773 (“the ’773 patent”) is unenforceable due to the patentee’s inequitable conduct before the PTO.  The panel also affirmed the district court’s award of attorney fees and costs under 35 U.S.C. § 285, but reversed the district court’s sanction against one of Advanced Magnetic Closures, Inc.’s (“AMC”) attorneys under 28 U.S.C. § 1927.

AMC owns the ’773 patent, which discloses a magnetic snap fastener with a small hole through the center rivet that purportedly increases the magnetic attraction between the two halves of the fastener, according to claim 1.  AMC’s president, Irving Bauer, is the sole named inventor on the ’773 patent, but his former employee, Robert Riceman, testified that he invented the claimed fastener.  At his deposition, Mr. Riceman testified that Mr. Bauer did not list Mr. Riceman on the ’773 patent in order to avoid the terms of a consulting agreement that would have caused the patent to be assigned to another former employer of Mr. Riceman, Mitchell Medina. 

To rebut Mr. Riceman’s claims, AMC submitted several documents into evidence that were later shown to be falsified or misleading.  AMC submitted a 1993 invoice for an order of fastener prototypes, an invoice for the law firm that prosecuted the ’773 patent, and copies of Mr. Bauer’s sketches of the invention, which AMC submitted as “a copy of the copy of the original sketch,” slip op. at 9, restating Mr. Bauer’s original notations.  Mr. Bauer testified that he created the enhanced copies in 2004.  AMC also submitted an expert report in support of its infringement claim, opining that the rivets in the accused products increase the magnetic attraction, as required by the claim.  The infringement expert cited the results of a “finite element analysis” test that measured magnetic flux with and without the hole in the rivets.  The expert concluded that the test results showed that the holes in the rivets increase the magnetic attraction of the fastener.  But after further discovery, it became clear that (1) the expert never performed the test, and (2) the person who did perform the test sent the expert test results that directly contradicted the expert report.  AMC eventually withdrew the expert’s report, citing “irreconcilable differences.”

After it heard AMC’s case-in-chief, the district court granted Rome Fastener Corp.’s (“Rome”) JMOL motion on noninfringement.  It then granted attorney fees based on litigation misconduct and inequitable misconduct for fraudulently listing Mr. Bauer as the inventor of the ’773 patent.  The district court also sanctioned AMC’s attorneys for a portion of Rome’s attorney fees under § 1927.  AMC appealed the district court’s finding that the ’773 patent was unenforceable due to inequitable conduct and that this was an exceptional case under § 285.  AMC, however, did not argue that the award of attorney fees due to litigation misconduct was improper.

On appeal, AMC asserted that the district court improperly awarded attorney fees to Rome without first deciding inventorship under § 102(f).  AMC first argued that, because Rome withdrew a counterclaim pertaining to § 102(f), the district court did not have jurisdiction to address inequitable conduct based on underlying inventorship issues.  The Federal Circuit held that, because district courts retain jurisdiction to address the issue of inequitable conduct under § 285 even after a party has dismissed its counterclaims, the district court properly addressed inequitable conduct even after Rome withdrew its counterclaim pertaining to inventorship under § 102(f).  The Court next addressed AMC’s due process argument based on a similar theory.  The Court held that although AMC characterized the issue as one of the district court’s failure to grant AMC a fair hearing on inventorship, what the district court actually addressed was Rome’s motion for attorney fees under § 285.  AMC had ample opportunity to respond, reasoned the Court, as evidenced by its own participation in the briefing and hearing on attorney fees in the district court, during which AMC actually discussed inventorship to rebut Rome’s claim of inequitable conduct.  The Court also observed that AMC addressed inventorship when it moved for SJ against Rome’s “unclean hands” and § 102(f) defenses before trial.


“If district courts do not abuse their discretion in holding patents unenforceable when true inventors deliberately exclude co-inventors, a district court can, a fortiori, exercise its discretion to hold a patent unenforceable when a person falsely swears that he invented a device before the PTO.”  Slip op. at 23.

Next, the Federal Circuit dismissed AMC’s argument that inequitable conduct based upon a false oath of inventorship necessarily requires a determination of inventorship first.  The Court cited a case in which it held that a patent was unenforceable as to an “innocent” coinventor due to the inequitable conduct of the remaining inventors who deliberately excluded him.  Frank’s Casing Crew & Rental Tools, Inc. v. PMR Techs., Ltd., 292 F.3d 1363, 1376-77 (Fed. Cir. 2002).  The Federal Circuit in Frank’s Casing affirmed the unenforceability of the patent, then remanded the case to the district court for determining correct inventorship.  As in Frank’s Casing, the Court held that the district court here had no obligation to resolve inventorship to hold the ’773 patent unenforceable.

The Court then addressed the merits of the district court’s inequitable conduct finding.  It held that the district court properly found highly material the information concealed by the inventor:  that he was “not the inventor he claimed to be.”  Slip op. at 18 (citation omitted).  Further, the Court found the district court’s determination on intent to deceive the PTO suitably supported by many underlying facts, including Mr. Bauer’s contradictory testimony about his own inventorship, his inability to clearly discuss the invention in his testimony, and importantly, his fabricated evidence.  It noted as well that, although the district court was required to weigh all evidence in analyzing intent to deceive, it did not commit clear error by failing to explicitly count certain letters as evidence of good faith.  The Court also dismissed AMC’s other arguments about the district court’s findings on intent, acknowledging the district court’s discretion to consider the hearsay testimony of Mr. Riceman during a bench trial.  The Federal Circuit observed that the district court, at most, relied on Mr. Riceman’s testimony to infer why Mr. Bauer claimed he was the sole inventor—not as a basis for Mr. Bauer’s intent to deceive.  Although the Court found Mr. Riceman’s testimony unreliable, it held the error harmless because AMC’s own evidence alone provided a sufficient basis to infer intent to deceive.

The Federal Circuit also upheld the district court’s award of attorney fees on the independent ground of AMC’s litigation misconduct.  The Court first noted that AMC waived its argument on the issue by failing to argue it in its opening brief or even in its reply brief.  Further, by acknowledging the litigation misconduct argument in a sentence in its reply brief, AMC demonstrated that it clearly understood the issue. 

Finally, the Federal Circuit reversed the district court’s award of sanctions against AMC’s trial counsel, David Jaroslawicz, under § 1927, finding that the district court did not meet the Second Circuit’s requirement of a “high degree of specificity” in its bad-faith analysis.  The Court held that the district court implicitly and improperly applied an objective standard to Mr. Jaroslawicz’s actions, as evidenced by its statement that he “should have been aware of the deficiency of AMC’s patent infringement claim.”
Id. at 26 (emphasis and citation omitted).  The Second Circuit requires subjective bad faith of counsel, the Court reasoned, not bad faith relative to a reasonable attorney.

Judge Rader concurred, agreeing that the district court’s error was harmless.  In Judge Rader’s view, however, except in extreme cases, the Federal Circuit should not decide inequitable conduct cases before addressing the issue en banc in the pending appeal of Therasense, Inc. v. Becton, Dickinson & Co., 2010 WL 1655391 (Fed. Cir. Apr. 26, 2010).  Judge Rader summarized the issue en banc as whether inequitable conduct should revert to its original application to “rare exceptional cases of egregious fraud that results in the grant of a patent that would not otherwise issue” from what it has become—“a rather automatic assertion in every infringement case.”  Rader Concurrence at 2.

Summary authored by Mai-Trang Dang, Esq.