Photo Electronics Corp. v. England

• Decision Date: 08 September 1978
• Docket Number: 76-1298,Nos. 77-2657,s. 77-2657
• Citation: 581 F.2d 772,199 USPQ 710
• Parties: PHOTO ELECTRONICS CORPORATION, Plaintiff-Appellee, v. John M. ENGLAND, Trustee in Bankruptcy for Ferrex Corporation, Defendant-Appellant. PHOTO ELECTRONICS CORPORATION, Plaintiff-Appellee, v. FERREX CORPORATION, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 772

581 F.2d 772

199 U.S.P.Q. 710

PHOTO ELECTRONICS CORPORATION, Plaintiff-Appellee, v. John M. ENGLAND, Trustee in Bankruptcy for Ferrex

Corporation, Defendant-Appellant.

PHOTO ELECTRONICS CORPORATION, Plaintiff-Appellee, v. FERREX CORPORATION, Defendant-Appellant.

Nos. 77-2657, 76-1298.

United States Court of Appeals,

Ninth Circuit.

Sept. 8, 1978.

Albert E. Fey, William J. Gilbreth, David J. Lee, Fish & Neave, New York City; Max Thelen, Jr., Fredric C. Nelson, Thelen, Marrin, Johnson & Bridges, San Francisco, Cal., for plaintiff-appellee.

Julian Caplan, Gregg, Hendricson, Caplan & Becker, San Francisco, Cal., Sidney Berlin, Berlin & Goodman, Redwood City, Cal., for defendant-appellant.

Appeal from the United States District Court for the Northern District of California.

Before BROWNING and WRIGHT, Circuit Judges, and KUNZIG, Judge of the United States Court of Claims.

EUGENE A. WRIGHT, Circuit Judge:

Photo Electronics Corporation sued the Ferrex Corporation for infringement of Patents No. 3,351,707 ('707) and No. 3,471,740 ('740). Ferrex countered that the patents in suit were obvious, obtained by fraud and not infringed. It counterclaimed that Photo Electronics' conduct in obtaining the patents and prosecuting the infringement action was violative of the antitrust laws. The district court held the patents valid and infringed, enjoined further infringement, ordered an accounting and dismissed the counterclaim.

Ferrex appealed the finding of liability pursuant to 28 U.S.C. § 1292(a)(4) while the accounting proceeded before a magistrate. The district court reviewed and adopted the magistrate's findings and recommendations and awarded the plaintiff corporation damages of $2,934,800. Again, Ferrex appealed.

We consolidated the appeals, which are not prosecuted by England, Ferrex's trustee in bankruptcy. ¹ We affirm the judgment of the district court.

The patents in suit comprehend an electronic video analyzer for color film negatives. The analyzer is designed to be a relatively inexpensive and maintenance-free device which reports information about the color content of film negatives of still photographs. Its principal use is in color laboratories that process film for professional photographers. The '707 patent claims the basic analyzer and the '740 patent claims a component of the system which automatically adjusts the brightness and contrast of the analyzer's video display.

Photo Electronics alleged that its patents were infringed by the Ferrex Colorverter 1000, and amended its complaint to allege that a later model of the Ferrex machine, the Colorverter 1500, also infringed its patents. The Colorverter 1000 was commercially unsuccessful and its production was extremely limited. The model 1500, however, was manufactured in considerable quantity and its sales were substantial.

I.

VALIDITY OF THE PATENTS

A. General Principles.

Patentability requires novelty, utility and nonobviousness. Graham v. John Deere Co., 383 U.S. 1, 12, 86 S.Ct. 684, 15 L.Ed.2d 545 (1966); 35 U.S.C. §§ 101-103. Central to the resolution of this dispute is the question whether Photo Electronics' patents '707 and '740 are obvious in light of the prior art.

Patent validity is ultimately a question of law, but resolution of the obviousness issue turns on specific factual inquiries Under § 103, the scope and content of the prior art are to be determined; differences between the prior art and the claims at issue are to be ascertained; and the level of ordinary skill in the pertinent art resolved.

Graham, 383 U.S. at 17, 86 S.Ct. at 694. See also Austin v. Marco Dental Products, 560 F.2d 966, 971 (9th Cir. 1977), Cert. denied, 435 U.S. 1477, 98 S.Ct. 1477, 55 L.Ed.2d 511 (1978).

"The trial court's Graham findings are binding on appeal if not clearly erroneous." Saf-Gard Products, Inc. v. Service Products, Inc., 532 F.2d 1266, 1272 (9th Cir.), Cert. denied, 429 U.S. 896, 97 S.Ct. 258, 50 L.Ed.2d 179 (1976).

Patents may be issued properly for inventions which combine elements existing in the prior art if the result is "unusual or surprising." Great A & P Tea Co. v. Super Market Equipment Corp., 340 U.S. 147, 152, 71 S.Ct. 127, 95 L.Ed. 162 (1950). See also Saf-Gard, 532 F.2d at 1272. Such combination patents, however, are critically appraised:

Courts should scrutinize combination patent claims with a care proportioned to the difficulty and improbability of finding invention in an assembly of old elements. . . . A patent for a combination which only unites old elements with no change in their respective functions . . . obviously withdraws what is already known into the field of its monopoly and diminishes the resources available to skillful men. . . .

Sakraida v. Ag Pro, Inc., 425 U.S. 273, 281, 96 S.Ct. 1532, 1537, 47 L.Ed.2d 784 (1976) (quoting Great A & P Tea Co., 340 U.S. at 152, 71 S.Ct. 127). See also Anderson's-Black Rock, Inc. v. Pavement Salvage Co., Inc., 396 U.S. 57, 61, 90 S.Ct. 305, 24 L.Ed.2d 258 (1969); Austin, 560 F.2d at 972; Kamei-Autokomfort v. Eurasian Automotive Products, 553 F.2d 603, 608 (9th Cir. 1977).

Secondary considerations may be weighed to assist the court in determining whether a patent is obvious. Such factors as commercial success, long felt but unsolved need, and failure of others are relevant and appropriate to the inquiry. Graham, 383 U.S. at 17-18, 86 S.Ct. 684; Austin, 560 F.2d at 971; Reeves Instrument Corp. v. Beckman Instruments, Inc., 444 F.2d 263, 271-72 (9th Cir.), Cert. denied, 404 U.S. 951, 92 S.Ct. 283, 30 L.Ed.2d 268 (1971). Although the presence or absence of secondary factors is not conclusive, their presence buttresses a conclusion of nonobviousness. Austin, 560 F.2d at 972.

These "subtests" of patent validity are "more susceptible of judicial treatment than are the highly technical facts often present in patent litigation." Santa Fe-Pomeroy, Inc. v. P & Z Co., Inc., 569 F.2d 1084, 1098 (9th Cir. 1978) (Citing Reiner v. I. Leon Co., 285 F.2d 501, 503-04 (2d Cir. 1960)). Resort to these factors is particularly helpful in deciding close questions of obviousness and assists the court in observing the caveat that "an invention will not be denied a patent because it embodies a solution which seems simple and obvious with the benefit of hindsight." Santa Fe-Pomeroy, Inc., 569 F.2d at 1098; Saf-Gard, 532 F.2d at 1272.

Patents are accorded a statutory presumption of validity which can be overcome only by clear and convincing evidence. Santa Fe-Pomeroy, Inc., 569 F.2d at 1091. The presumption, however, is dissipated when the patent examiner is shown to have failed to consider pertinent prior art. Saf-Gard, 532 F.2d at 1270-71.

Finally, the patent applicant's duty to fully and fairly disclose all facts affecting patentability is relevant to the issues raised in this appeal. Patents create legal monopolies, and a patent applicant's failure to disclose pertinent information impairs the Patent Office in its function of preventing issuance of unlawful patent monopolies. Precision Instruments Mfg. Co. v. Automotive Maintenance Machinery Co., 324 U.S. 806, 818, 65 S.Ct. 993, 89 L.Ed. 1381 (1945); Maurice A. Garbell, Inc. v. Boeing Co., 546 F.2d 297, 300 (9th Cir. 1976); Monolith Portland Midwest Co. v. Kaiser Aluminum & Chemical Corp., 407 F.2d 288, 296 (9th Cir. 1969). Breach of this duty is relevant to the issue of patent validity. Monolith Portland Midwest, 407 F.2d at 294.

B. Construction of the Patent Claims.

Because a patent's claims are the "sole measure of the monopoly granted," Burgess & Associates v. Klingensmith, 9th Cir. 1973, 487 F.2d 321 at 324, the construction given them is critical in patent litigation.

Construction of the claims is influenced by the general rule that patentees are a favored class of litigants, Santa Fe-Pomeroy, 569 F.2d at 1091 (Quoting Blonder-Tongue Laboratories, Inc. v. University of Illinois Foundation, 402 U.S. 313, 335, 91 S.Ct. 1434, 28 L.Ed.2d 788 (1971)). The starting point is the rule that patent claims should be construed liberally to uphold the patent's validity rather than to destroy the inventor's right to protect the substance of his invention. Technitrol, Inc. v. Control Data Corp., 550 F.2d 992, 998 (4th Cir.), Cert. denied, 434 U.S. 822, 98 S.Ct. 65, 54 L.Ed.2d 79 (1977); Roberts Dairy Corp. v. United States, 530 F.2d 1342, 1367, 208 Ct.Cl. 830 (1976); Cool-Fin Electronics Corp. v. International Electronic Research Corp., 491 F.2d 660, 661 (9th Cir. 1974). See generally 4 Deller's Walker on Patents § 226 (2d ed. 1965).

The policy favoring liberal construction of patent claims, however, goes only so far. Patent validity may not be founded on functions or characteristics not mentioned in the patent claims. Burgess, 487 F.2d at 324. A patentee cannot defend his patent's validity on the basis of functions or characteristics not apparent at the time the patent issued or discoveries that later altered his understanding of his invention's scope. Standard Coil Products Co. v. General Electronic Co., 306 F.2d 319, 322-23 (2d Cir. 1962).

Interpreting patent claims calls for more than application of a rigid literalism. The patent is a contract between the government and the patentee. The accepted rules for construing contracts should be consulted and applied. " '(A)ll parts of the writing, and every word in it, will, if possible, be given effect,' so in construing a patent, the entire instrument, including the drawings and specifications, should be considered." 4 Deller's Walker on Patents § 225 at 67 (2d ed. 1965) (footnote omitted). See United States v. Adams, 383 U.S. 39, 48-49, 86 S.Ct. 708, 15 L.Ed.2d 572 (1966).

Mindful of these principles of patent construction and validity, we proceed to review the district court's decision.

C. Standard of Review.

As discussed above, the legal issue of patent validity is closely tied to the trial court's factual inquiries, and the court's Graham findings will not be upset unless they are...