New Medium LLC v. Barco N.V.

• Decision Date: 16 October 2008
• Docket Number: No. 05 C 5620.,05 C 5620.
• Parties: NEW MEDIUM LLC, AV Technologies, LLC, J. Carl Cooper, Pixel Instruments Corporation, IP Innovation LLC, and Technology Licensing Corporation, Plaintiffs, v. BARCO N.V., and Syntax-Brillian Corporation, Defendants.
• Court: U.S. District Court — Northern District of Illinois

582 F.Supp.2d 991

NEW MEDIUM LLC, AV Technologies, LLC, J. Carl Cooper, Pixel Instruments Corporation, IP Innovation LLC, and Technology Licensing Corporation, Plaintiffs, v. BARCO N.V., and Syntax-Brillian Corporation, Defendants.

No. 05 C 5620.

United States District Court, N.D. Illinois, Eastern Division.

October 16, 2008.

COPYRIGHT MATERIAL OMITTED

Raymond P. Niro, Arthur Anthony Gasey, David Joseph Mahalek, Douglas M. Hall, Joseph Nevi Hosteny, III, Kara Leta Szpondowski, Paul Christopher Gibbons, Tahiti Arsulowicz, Niro, Scavone, Haller & Niro, Ltd., Chicago, IL, for Plaintiffs.

Daniel J. O'Connor, Daniel Alan Tallitsch, David I. Roche, Edward Keith Runyan, Baker & Mckenzie LLP, Chicago, IL, Darin Margules, Silver & Freedman, Los Angeles, CA, Kevin David Erickson, Maxwell J. Petersen, Pauley Petersen Kinne & Erickson, Hoffman Estates, IL, for Defendants.

MEMORANDUM OPINION

RICHARD A. POSNER, Circuit Judge, sitting by designation.

On September 16, 2008, I conducted a one-day evidentiary hearing on Barco's defense that New Medium engaged in inequitable conduct in for a proceeding to reexamine U.S. Patent No. 5,424,780, J.P. Stevens & Co. v. Lex Tex Ltd., 747 F.2d 1553, 1559-62 (Fed.Cir.1984); Star Scientific, Inc. v. R.J. Reynolds Tobacco Co., 537 F.3d 1357, 1365-66 (Fed.Cir.2008), and should therefore be barred from enforcing two patents on which this lawsuit is based. They are the '780 patent itself and U.S. Patent No. 6,529,637, which is closely related to the '780 patent and was the subject of the same kind of reexamination proceeding in which the same expert reports (the basis of the charge of inequitable conduct) were submitted. This opinion contains my findings of fact and conclusions of law. Fed.R.Civ.P. 52(a).

The burden of proving inequitable conduct is by clear and convincing evidence, Praxair, Inc. v. ATMI, Inc., 2008 WL 4378391, at *4 (Fed.Cir. Sept.29, 2008); Monsanto Co. v. Bayer Bioscience N.V., 514 F.3d 1229, 1233-34 (Fed.Cir. 2008), that the "patent applicant breached its duty of candor and good faith to the United States Patent and Trademark Office by failing to disclose material information, or submitting false material information, with an intent to deceive the PTO." Id. at 1234. "[B]ecause of the ex parte nature of patent prosecution and the valuable assets accruing from patent rights, the PTO imposes on applicants a `duty of candor and good faith' to adequately disclose known information that may prove to be important—or `material'—to the PTO's evaluation process. If the PTO issues a patent after an applicant breaches the duty of good-faith disclosure, the applicant's patent will be susceptible to a future challenge. When the applicant attempts to enforce his or her patent rights against another in a subsequent infringement action, the accused infringer may successfully raise the defense of inequitable conduct, thereby preventing the patent holder from enforcing the patent against the accused infringer." Elizabeth Peters, "Note: Are We Living in a Material World?: An Analysis of the Federal Circuit's Materiality Standard Under the Patent Doctrine of Inequitable Conduct," 93 Iowa L.Rev. 1519, 1526 (2008).

Barco makes two charges of inequitable conduct. One has no merit: that New Medium misled the patent examiner by failing to disclose that all four of its outside expert witnesses (the fifth, Mr. Cooper, is an insider—he is the principal of New Medium) had been retained, and therefore paid for their reports. Two of the reports said the author had been retained; the other two did not, though in fact all four had been retained. The omissions were not misleading. The reexamination proceeding before the Patent Office was ex parte. In 1999 Congress passed a law that permits inter partes reexamination of the validity of patents applied for after the date of enactment. 35 U.S.C. § 311 et seq.; see Cooper Technologies Co. v. Dudas, 536 F.3d 1330, 1332 (Fed.Cir. 2008). "The identifying feature of inter partes reexamination is that it involves not merely the patent owner and the PTO. In contrast to ex parte reexam, a third-party requester participates throughout an inter partes case: the requester initiates the proceeding, the patent owner may respond to any office action, and the requester may comment on any response by the owner. In ex parte reexam, a non-owner ex parte requester's participation ends before the first office action." Joseph D. Cohen, "What's Really Happening in Inter Partes Reexamination," July 1, 2005, www.stoel.com/Files/InterPartes.pdf, p. 3 (visited Oct. 10, 2008). But the patents involved in this proceeding were applied for before the enactment of the new statute. The proceeding was therefore ex parte. And all expert reports in an ex parte proceeding before the Patent Office are procured by the patent owner or applicant, and it is customary to pay the experts for their time, as was done in this case. There is nothing in the reports of the two experts who didn't say they had been retained to suggest they were charging no fee—no suggestion that they had been moved by altruism or a strong conviction of the rightness of the application to volunteer to submit an expert report gratis.

The substantial charge of inequitable conduct relates to the statement in Cooper's report that "I have never met or talked with any of these experts [the four experts mentioned above] prior to my contacting them in the last month." The report is dated August 11, 2001, and signed by Cooper underneath the following attestation: "I hereby declare that all statements made herein of my own knowledge are true, that all information made on information and belief are believed to be true, and that all opinions expressed are true in my professional opinion; and further that these statements are made with the knowledge that willful false statements and the like so made are punishable by fine and imprisonment, or both, under Section 1001 of Title 18 of the United States Code; and that such willful false statements may jeopardize the reexamination and/or validity of the '780 patent under reexamination or any reexamination certificate which may issue."

Cooper's statement that he had not met or talked with any of the experts prior to a month before soliciting expert reports from them was false. He had had email correspondence and possibly one or more phone conversations with one of the experts, Kevin Klughart, beginning on January 15 of that year. That day he had called or emailed Klughart inviting him to bid on a project relating to another litigation in which Cooper was involved (Klughart is both a lawyer and an engineer). Klughart had responded the next day by sending Cooper a draft of a retainer form plus a confidentiality agreement that Cooper had requested. Klughart followed up a month later by sending Cooper a detailed proposal for the project. The proposal stated that the cost of the project would be $250,000. A few days later Klughart billed Cooper $3,000 for preparing the proposal. Cooper paid the bill on March 23 but did not respond to the proposal.

At his deposition Klughart testified that during the preparation of his proposal "there was probably a lot of talking going on," and since the only person he was talking to about the project was Cooper the implication is that there was other contact with Cooper besides what I have mentioned, though Klughart now denies recalling whether there was "a lot of talking going on."

Both he and Cooper testified at the evidentiary hearing. Klughart's testimony was not very helpful because he remembered so little about his dealings with Cooper, although that is understandable because they occurred more than seven years ago and Klughart has no records of those dealings. (Cooper's records are also scanty.) In addition, I learn from Cooper's post-hearing brief that Cooper anticipated calling Klughart as an expert witness in this lawsuit. (I learn this because the brief suggests that if I find inequitable conduct, I bar Cooper and Klughart from testifying, rather than void the patents.) I conclude that Klughart is not neutral and that his forgetfulness may be strategic.

Klughart testified in the evidentiary hearing that I conducted that he receives no response to 80 percent of his proposals and therefore was not surprised not to hear back from Cooper about his proposal for the $250,000 project. (He also testified that it is customary to submit a bill with the proposal, if the proposal was solicited, as it was in this instance.) He assumed that Cooper had thought the price tag too high. He testified that although his proposal had contained a statement that the offer was good for only 30 days, this did not mean that the proposal lapsed after that period (as New Medium argues) but only that the price was not guaranteed beyond then since the underlying costs on which it was based might change over a longer period.

When Cooper called Klughart in July to ask him to do a report for the patent proceeding, Klughart was surprised, given that Cooper had not gotten back to him about the proposal. It turns out that Cooper had given the project for which he had solicited a proposal from Klughart to a company called ChipWorks, to which Klughart had said in his proposal he would subcontract some of the work if his proposal was accepted.

Cooper testified that when he submitted his report in August of 2001 he had forgotten his prior dealings with Klughart. I do not believe that testimony. This is not because I would expect Cooper to remember every proposal that he had solicited, received, and tabled or rejected within the previous seven months, but because I would expect his memory to be jogged when he talked to Klughart about submitting an expert report, even if Klughart did not mention their previous dealings. (Klughart testified that he didn't remember whether he had mentioned them or not.) The name "Kevin Klughart" is uncommon. (A Google search turns up no Kevin...