653 F.2d 701 (1st Cir. 1981), 80-1377, Digital Equipment Corp. v. Diamond

Docket Nº:80-1377.
Citation:653 F.2d 701
Party Name:210 U.S.P.Q. 521 DIGITAL EQUIPMENT CORPORATION, Plaintiff, Appellant, v. Sidney A. DIAMOND, Etc., et al., Defendants, Appellees.
Case Date:June 12, 1981
Court:United States Courts of Appeals, Court of Appeals for the First Circuit

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653 F.2d 701 (1st Cir. 1981)

210 U.S.P.Q. 521



Sidney A. DIAMOND, Etc., et al., Defendants, Appellees.

No. 80-1377.

United States Court of Appeals, First Circuit

June 12, 1981

Argued Jan. 8, 1981.

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[Copyrighted Material Omitted]

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Donald R. Dunner, Washington, D. C., with whom John M. Romary, Charles E. Lipsey, Finnegan, Henderson, Farabow, Garrett & Dunner, Washington, D. C., Robert A. Cesari, Martin J. O'Donnell, and Cesari & McKenna, Boston, Mass., were on brief, for appellant.

Richard I. Samuel, Westfield, N. J., with whom Sidney David, William L. Mentlik, Lerner, David, Littenberg & Samuel, Westfield, N. J., and Foley, Hoag & Eliot, Boston, Mass., were on brief, for appellee Computer Operations, Inc.

Jere W. Sears, Washington, D. C., Atty., with whom Edward F. Harrington, U. S. Atty., and Charles K. Mone, Asst. U. S. Atty., Boston, Mass., were on brief, for appellee Sidney A. Diamond.

Before CAMPBELL and BREYER, Circuit Judges, and WYZANSKI, [*] Senior District Judge.

LEVIN H. CAMPBELL, Circuit Judge.

The district court proceeding from which this appeal is taken was instituted by Digital Equipment Corporation (DEC) with the object of overturning a decision of the U.S. Patent and Trademark Office (PTO) striking from the files, on grounds of "fraud," DEC's application for reissue of a patent. Computer Operations, Inc. (COI), DEC's adversary in ongoing patent infringement litigation, intervened as a defendant. On cross-motions for summary judgment, the district court found for the PTO and COI, and DEC now appeals.

Central to the appeal is a question of first impression: whether the PTO is authorized to strike reissue applications on the basis of the "patent law fraud" criteria reflected in the Commissioner's Rule 56, or whether Rule 56 is supplanted as regards reissue applications by a narrower "deceptive intention" standard found in 35 U.S.C. § 251.


The dispute revolves around U.S. Patent No. 3,387,293, which teaches a control format relating to a magnetic-tape data storage and retrieval system for small computers. Issued in 1968 to Thomas C. Stockebrand, a DEC employee, the patent was assigned by him to DEC.

Stockebrand joined DEC in the fall of 1962 and shortly thereafter became involved with a DEC project to develop and commercialize an existing system known as "LINC tape." Stockebrand had participated in the development of the LINC tape system as an employee of MIT Lincoln Laboratories, Bedford, Massachusetts. During the course of the DEC development program, Stockebrand improved upon the LINC tape format, eventually producing a system that could read and write on tape moving in either direction; it is this "bidirectional capability" which, according to DEC, provided the basis for Stockebrand's patentable claims. 1 DEC has marketed the

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Stockebrand system under the names "DEC tape" and "Micro tape."

In March 1963, DEC prepared an advertisement for the system modelled on LINC tape which it planned to market the "Micro Tape Control Type 550," which could be used in conjunction with up to eight "Micro Tape Transports Type 555." In May 1963, after DEC's development program had progressed further, DEC prepared a new advertising brochure to promote a "Type 550 Control" with bidirectional capability, to be used with up to four "Type 555 Dual Tape Transports." This brochure described in some detail elements of the system disclosed in the Stockebrand patent.

On May 15, 1963, DEC entered into an agreement to lease computer equipment, including two Micro Tape Controls and six Micro Tape Transports (to be used together as a system), to Kie Data Corp. However, when this lease commenced in July 1963, these units were still in process of being developed. As a result, DEC loaned Kie Data several conventional "Potter units" to be used in lieu of the DEC tape system. 2 Between June 1963 and August 1963, DEC also accepted three other orders for DEC tape devices; 3 two of the orders called for delivery on August 15, 1963 (DEC maintains this was the date set for "earliest possible" delivery) and the third set a delivery date of November 1, 1963. The delivery dates were not met, however. All three orders were listed as "overdue" in DEC memoranda of January 25 and 28, 1964, and the first of the three deliveries appears to have occurred on February 14, 1964.

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During the summer and fall of 1963, Stockebrand worked to perfect the DEC tape system. Sometime in the fall of 1963, a DEC tape system was delivered to Kie Data; the exact date of delivery is not known, but the PTO found on the basis of the evidence before it (including entries in Stockebrand's notebook) that the system was delivered prior to November 1963. According to Stockebrand, the system delivered was his "breadboard model," the "prototype" on which he had been running tests. The system suffered various breakdowns and disappointments in performance, and Stockebrand spent much of his time from November 1963 through January 1964 working on the system at Kie Data's plant.

As early as February 1964, Stockebrand conferred by telephone with Hugo Liepmann, DEC's patent counsel, concerning the DEC tape invention. He did not, however, at this time or later inform Liepmann of the delivery of the system to Kie Data or of the other orders for DEC tape systems accepted in the summer of 1963. Liepmann and Stockebrand first met on November 5, 1964, four days before the application for patent was filed, at which time they reviewed the application and discussed, inter alia, the preexisting LINC tape system. The application was then dated November 6, 1964 and was filed on November 9, 1964. 4 The application did not refer to LINC tape by name (although it contained what DEC characterizes as a description of prior art, which discloses certain features of the LINC tape system), nor did it mention the Kie Data delivery or other early commercial activity relating to DEC tape. (Although at least two other DEC employees who assisted in preparation of the patent application were aware that a system had been delivered to Kie Data, this fact was never disclosed to Liepmann or to his successor patent counsel, O'Donnell). As part of the application, Stockebrand signed an oath stating, inter alia:

I do not know and do not believe that this invention was ever known or used before my invention or discovery thereof, or ... in public use or on sale in the United States more than one year prior to this application....

Stockebrand restated the above in a "supplemental declaration" filed prior to issuance of the patent. On June 4, 1968, the PTO issued the patent to Stockebrand, and the patent became the property of the assignee, DEC.

In 1973, DEC learned that COI was marketing a tape system with an option that could read and write DEC tape. Following an exchange of correspondence between DEC and COI on the subject of possible infringement, on July 2, 1974 COI instituted an action against DEC, asserting antitrust claims and seeking a declaratory judgment of the invalidity and non-infringement of the Stockebrand patent (hereinafter, "infringement action"). COI raised issues relating to possible prior art and "on sale" bars to the patentability of DEC tape. See 35 U.S.C. §§ 102 & 103. To bolster its position in the infringement action, on February 3, 1975 DEC filed an application to reissue the patent pursuant to 35 U.S.C. § 251; it sought both to amend certain claims that "might be subject to a construction which covers more than the applicant is claiming as his invention," and to disclose to the PTO for the first time information relating

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to the Kie Data delivery and the LINC tape system, said to have been "discovered" in the course of investigating COI's charges in the infringement action.

Having been invited by DEC to participate in the reissue proceedings, COI petitioned the PTO to "strike" the reissue application on grounds of "fraud," pursuant to PTO Rule 56 (37 C.F.R. § 1.56). After further correspondence with DEC and COI, and following receipt of DEC's responses to two "Requirements for Information," on November 3, 1976 the PTO issued an "Order to Show Cause" why COI's petition should not be granted. The Order set forth 13 "grounds" establishing a "prima facie case of fraud": seven grounds related to the undisclosed commercial activity and to Stockebrand's declaration that the invention had not been "on sale" in the United States more than one year prior to the date of application (i. e., prior to November 9, 1963, the "critical date"); three grounds related to the undisclosed advertising materials prepared in the spring of 1963, which were said to be " 'prima facie' available as prior art against the application"; two grounds related to the inadequate disclosure of LINC tape, the "closest prior art of which (Stockebrand and DEC) were aware"; and one ground concerned the "mischaracterization" of the circumstances leading to the "discovery" and subsequent disclosure of the above information.

Following COI's submission of comments on the Order to Show Cause, on March 2, 1977 DEC filed its response to the Order, which was accompanied by five affidavits, including Stockebrand's. On April 4, 1978, the PTO issued a decision striking the reissue application under Rule 56, finding that nine of the thirteen grounds of fraud had been established by "clear and convincing evidence." The decision was signed by the Assistant Commissioner for Patents. DEC then brought this suit in the district court, and, as already noted, the district court refused to set aside the PTO action.

On appeal, DEC makes essentially two arguments:

(1) The PTO proceeded in excess of its statutory...

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