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Denial of Preliminary Injunction Affirmed Because Evidence Did Not Support That Prior Litigation Was a Sham

07-1434
April 08, 2008
Del Monaco, Anthony D.

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Last Month at the Federal Circuit - May 2008

Judges: Michel, Bryson, Kennelly (author, District Judge sitting by designation)

[Appealed from: W.D. Penn., Judge Lancaster]

In Judkins v. HT Window Fashion Corp., No. 07-1434 (Fed. Cir. Apr. 8, 2008), the Federal Circuit affirmed the district court’s denial of appellant HT Window Fashion Corporation’s (“HT”) request for a preliminary injunction because HT failed to demonstrate a likelihood of success on the merits. The Court also denied appellee Ren Judkins’s (“Judkins”) request for attorney fees.

Judkins developed a process for manufacturing window coverings in the early 1990s, commissioned his lawyer to draft a patent application in 1991, but did not file the application (U.S. Patent Application No. 08/412,875 (“the ’875 application”)) until 1995. In 1996, an inventor filed a patent application for a similar product that issued the following year as U.S. Patent No. 5,692,550 (“the ’550 patent”). In early 1998, the assignee of the ’550 patent, Newell Window Furnishings, Inc. (“Newell”) filed a patent infringement suit asserting the ’550 patent (“the Springs litigation”). During the Springs litigation, Judkins’s invention was analyzed as prior art, and he and his attorney testified in the case. The trial court in the Springs litigation determined that the ’550 patent was not anticipated by Judkins’s invention because Judkins had suppressed, concealed, or abandoned the invention due to the four -year delay in filing the application. The district court, however, invalidated the ’550 patent on other grounds.

Also in 1998, Judkins sought an interference between Newell’s ’550 patent and his own U.S. Patent Application No. 08/756,282 (“the ’282 application”), which was a continuation of his ’875 application. In 2001, the Board ruled that Judkins had abandoned his invention and awarded priority against him. At that point, both Judkins and Newell were in a difficult position, because the Board had ruled that Judkins had abandoned his invention and Newell had no valid patent because the Federal Circuit had affirmed the trial court’s holding of invalidity. In response to the Board’s ruling, Judkins filed a suit under 35 U.S.C. § 146 in the Western District of Pennsylvania seeking to overturn the Board’s decision and seeking a determination that the invalidated ’550 patent was derived from his invention.

Judkins and Newell entered into a settlement agreement, and Judkins requested that the district court vacate the Board’s ruling that he had abandoned his invention. When the judge entered the Judkins-Newell proposed order, the district court found that Judkins did not suppress or conceal the invention and vacated the Board’s determination. The Board responded by granting priority to Judkins’s ’282 application over the  ’550 patent. Subsequently, Judkins obtained U.S. Patent No. 7,182,120 (“the ’120 patent”), derived from the ’282 application.

Shortly before the ’120 patent issued, Judkins had sent letters to HT’s current and potential customers warning of likely infringement by HT’s products. HT brought suit in the Central District of California to stop Judkins from sending the letters. Judkins countered by filing an infringement suit against HT in the Western District of Pennsylvania. The California case was consolidated in Pennsylvania. During this litigation, the district court denied HT’s motion for a preliminary injunction, concluding that HT could not establish bad faith or overcome the presumption of the patent’s validity by clear and convincing evidence. Thus, HT could not show the requisite likelihood of success on the merits.

On appeal, the Federal Circuit determined that the evidence relating to Judkins’s conduct during the ’120 patent’s prosecution did not point unequivocally to bad faith. HT alleged that the bad acts consisted of a “sham” litigation concocted to overturn the Board’s decision and that Judkins failed to disclose the abandonment finding in the Springs litigation to the Pennsylvania district court in connection with the settlement agreement. The Court disagreed with HT’s assertion, concluding that Judkins’s 2001 suit with Newell was obviously not a sham. The Court noted that the action was litigated for two years before it finally settled; Newell had moved to dismiss the case earlier in the litigation, which would have stuck Judkins with the Board’s ruling; and that both parties took from the settlement something of value.

The Court reasoned that “[w]hen genuine adversaries reach a mutually agreeable compromise and present their agreement in detail to the court, and no fraud or other problems militate against the agreement’s enforcement, public as well as private interests are best served by giving effect to the settlement.” Slip op. at 10. The Court further noted that Newell had disclosed the abandonment finding to the Pennsylvania district court when it moved to dismiss the 2001 suit.

In considering HT’s argument that the district court improperly discounted the materiality of the Springs litigation, the Federal Circuit found that the district court balanced the “unfavorable” finding in the Springs litigation against its own earlier reversal of the Board’s decision and merely concluded that the status of the ’120 patent was open to reasonable debate. The Court could not conclude that this analysis amounted to clear error.

The Federal Circuit also rejected HT’s argument that the district court improperly applied a presumption of validity to patents that were fraudulently acquired. The Court noted that “‘[a] patent procured through inequitable conduct is not invalidated thereby,’ although it may be held unenforceable on that basis ‘as a matter of equitable principle.’” Id. at 12-13 (alteration in original) (quoting Zenith Elecs. Corp. v. Exzec, Inc., 182 F.3d 1340, 1349 (Fed. Cir. 1999)). Therefore, because the possibility of inequitable conduct behind the ’120 patent was not so clear-cut, the district court’s reliance on the presumption of validity was not erroneous.

HT further argued that the district court erred in not using the “objective baselessness” standard for bad faith. The Court disagreed, noting that the district court used the proper standard and cited to the Federal Circuit’s leading case linking bad faith to objective baselessness, Globetrotter Software v. Elan Computer Group, Inc., 362 F.3d 1367, 1375, 1377 (Fed. Cir. 2004). The Federal Circuit noted that the district court, at several points in its opinion, indicated that Judkins’s claims were not objectively baseless. Moreover, the Federal Circuit disagreed with HT’s assertion that the district court failed to shift the burden to Judkins after HT established a prima facie case of intent to deceive. The Federal Circuit held that the district court did not abuse its discretion in declining to conclude that HT had established a prima facie case of inequitable conduct.

Finally, the Court rejected Judkins’s argument that Judkins was entitled to attorney fees and costs because HT’s appeal was frivolous. The Court stated that it will grant a motion for fees and costs 9 Last Month at the Federal Circuit “only when an appeal is ‘clearly hopeless and unquestionably without any possible basis in fact or law.’” Slip op. at 17 (quoting Chemical Eng’g Corp. v. Marlo, 754 F.2d 331, 335 (Fed. Cir. 1984)). The Court noted that HT’s appeal from a denial of a preliminary injunction was reviewed for clear error, which meant that HT faced slim odds. The Court held, however, that “slim is not none” and that Judkins failed to show by reference to specific features of HT’s appeal that it was clearly hopeless.