87 F.3d 1559 (Fed. Cir. 1996), 95-1242, Litton Systems, Inc. v. Honeywell, Inc.

Docket Nº:95-1242, 95-1311.
Citation:87 F.3d 1559
Party Name:96 Daily Journal D.A.R. 9541 LITTON SYSTEMS, INC., Plaintiff-Appellant, v. HONEYWELL, INC., Defendant/Cross-Appellant.
Case Date:July 03, 1996
Court:United States Courts of Appeals, Court of Appeals for the Federal Circuit
 
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Page 1559

87 F.3d 1559 (Fed. Cir. 1996)

96 Daily Journal D.A.R. 9541

LITTON SYSTEMS, INC., Plaintiff-Appellant,

v.

HONEYWELL, INC., Defendant/Cross-Appellant.

Nos. 95-1242, 95-1311.

United States Court of Appeals, Federal Circuit

July 3, 1996

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S. Leslie Misrock, Pennie & Edmonds, New York City, argued, for plaintiff-appellant. With him on the brief were Rory J. Radding, New York City, and Stanton T. Lawrence, III, Washington, D.C. Also on the brief was Frederick A. Lorig, Bright & Lorig, Los Angeles, California.

Gregory A. Long, Sheppard, Mullin, Richter & Hampton, Los Angeles, California, argued, for defendant/cross-appellant. With him on the brief was Kent R. Raygor. Also on the brief were Richard E. Carlton and Joseph E. Neuhaus, Sullivan & Cromwell, New York City, and Laurence H. Pretty, Pretty, Schroeder, Brueggemann & Clark, Los Angeles, California.

Before NEWMAN, RADER, and BRYSON, Circuit Judges.

RADER, Circuit Judge.

Litton Systems, Inc. (Litton) appeals a decision of the United States District Court for the Central District of California. After a jury verdict in favor of Litton, the trial court determined as a matter of law that Honeywell did not infringe Litton's U.S. Patent No. Re. 32,849 ('849 reissue) and U.S. Patent No. 4,142,958 (the '958 patent). The trial court also held the '849 reissue unenforceable for inequitable conduct. With respect to federal law claims, the trial court applied the doctrine of intervening rights and granted Honeywell a new trial on damages.

With respect to state law claims, the trial court granted Honeywell's motion for judgment as a matter of law (JMOL) on intentional interference with contractual relations and intentional interference with prospective economic advantage. Because substantial evidence supports the jury verdict, this court reverses the trial court's grant of JMOL. However, this court affirms the trial court's finding of intervening rights and its decision to grant a new trial on damages.

BACKGROUND

On April 13, 1978, Litton filed a patent application on a method for coating a substrate with multiple layers of materials to form an optical component. This method uses ion beams to coat optical material with multiple layers. The result is an almost

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perfectly reflective mirror. These nearly perfect mirrors are essential components in sophisticated ring-laser gyroscopes (RLGs) used for navigational control of aircraft. An RLG shoots two laser beams in opposite directions around a ring of mirrors and measures any differences in their time of traversing the circle. After measuring these differences in three different axes, the RLG precisely calculates the speed, direction, and attitude of the aircraft. Without nearly perfect mirrors, this navigational device will not perform. The patented process produces high stability mirrors by ion-beam sputtering.

During prosecution of its 1978 application, Litton did not submit prior art to the Patent and Trademark Office (PTO). The application designated two Litton employees, Dr. David T. Wei (Wei) and Anthony W. Louderback (Louderback), as the inventors, with Litton as the assignee. This patent application issued as the '958 patent on March 6, 1979.

In 1981, Louderback left Litton to form his own optical coating company, Ojai Research, Inc. (Ojai). Nonetheless Louderback preserved his relationship with Litton by entering a licensing and an exclusive consulting agreement with his former employer. The licensing agreement permitted Louderback to practice the '958 patent. Indeed Louderback began supplying Litton mirrors for RLGs. The licensing agreement forbade Louderback to use the patented technology to make RLG mirrors for anyone other than Litton.

Louderback's exclusive consulting contract lasted until February 25, 1983. Under this agreement, Litton owned any inventions, developments, or discoveries Louderback made on the licensed process. The agreement also forbade Louderback from disclosing the patented technology.

During the exclusive consulting agreement with Litton, Louderback made improvements and modifications to the Litton process. Louderback developed multiple-layer optical films with graded interfaces between the layers of the mirrors. This advance used a sliding target holder to apply the layers. The sliding target holder moved gradually from one target to another to create a graded interface between the layers. Under the terms of the consulting agreement, Litton owned these improvements. Louderback violated this agreement by withholding this improvement from its rightful owner, Litton.

Louderback testified that he provided Honeywell with RLG mirrors from 1984 to 1990. Louderback made these mirrors with the patented method. This action also expressly violated both the licensing and consulting agreements with Litton.

Honeywell used the RLG mirrors from Louderback in navigational systems for Boeing aircraft. Before switching to the ion-beam mirrors supplied by Louderback, Honeywell used electron-beam (E-beam) coated mirrors. In 1983, Honeywell began to suffer problems with these E-beam mirrors. Mr. Podgorski of Honeywell testified that Boeing rejected over twenty percent of Honeywell's mirrors for failure. Because of reflectivity problems, Honeywell switched to Louderback's ion-beam mirrors.

The record fully documented the nature of the mirror problems which prompted this switch. In an interoffice memo dated November 1, 1983, Mr. Seiber, a Honeywell employee, noted a "real problem with photochromism and loss stability of the E-beam mirrors." He warned that "a significant fraction, 25%, of the mirrors are photochromic and that most if not all further degrade with gyro running time." In a 1984 memo, Mr. Stan Moeschl, a Honeywell Vice President, explained that the E-beam mirrors have a limited useful life.

These problems began to threaten Honeywell's standing with its major client, Boeing. Mr. Swanson, a Boeing executive, testified that his company knew of Honeywell's mirror problems. He testified that the malfunctioning navigational systems caused him real concern. Indeed Boeing returned many malfunctioning RLGs.

A Honeywell internal memo dated February 15, 1984, stated "the urgency is very great [to solve the problem]." Responding to this urgency, Honeywell initiated a business relationship with Louderback. Louderback enabled Honeywell to switch to the

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more reliable ion-beam mirrors. The record shows that the ion-beam mirrors were more durable than E-beam mirrors by two to three times. Honeywell ordered these mirrors from Ojai Research and General Optics, Inc.--both Louderback companies.

On July 2, 1985, during litigation with another party over RLG mirrors, Litton sought to reissue the '958 patent. Litton's reissue application incorporated dependent claim 2 into independent claim 1, thereby narrowing its scope. On August 30, 1985, Litton submitted a patentability report citing eighty-two prior art references to the examiner.

The '958 patent reissued on January 31, 1989, as U.S. Patent No. Re. 32,849. The reissue patent contains two independent claims and twenty dependent claims. The two independent claims read:

1. A method of fabricating multiple layer optical films, said multiple layer optical films comprising optical layers having different indices of refraction comprising:

bombarding targets obliquely with an ion beam produced by or derived from a Kaufman-type ion beam source in a vacuum chamber to sputter deposit a plurality of optical film layers on a base;

controlling the atmosphere inside the vacuum chamber to provide sufficient gas to sustain the ion beam and the proper amount of oxygen to accomplish proper stoichiometry of the thin films; and

depositing multiple layers of different materials on said base by varying the targets being bombarded by the ion beam; and

continuously rotating said base during the deposition of said multiple optical layers.

18. A method of fabricating multiple layer optical films said multiple layer optical films comprising at least two optical layers having different indices of refraction, in alternating layers, comprising:

bombarding at least two targets comprising materials having different indices of refraction obliquely with an ion beam produced by or derived from Kaufman-type ion beam source in a vacuum chamber to sputter deposit a plurality of optical film layers comprising said materials in alternating layers on a base;

controlling the atmosphere inside of the vacuum chamber to provide sufficient gas to sustain the ion beam and the proper amount of oxygen to accomplish proper stoichiometry of the thin films;

depositing multiple layers of said materials having different indices of refraction on said base by varying the targets being bombarded by the ion beam; and

continuously rotating said base during the deposition of said multiple optical layers.

Dependent claim 3 specifies that the claim 1 process may use the ion beam to clean the substrate. Dependent claims 4-7, 9-12, and 14-16 vary the parameters of claim 1 in making a mirror. Dependent claim 8 discloses a cooling method for the process. Dependent claim 9 shows a low expansion ceramic substrate. Dependent claims 13 and 17 describe a method with fewer impurities and voids. Dependent claims 19-22 claim ways to reduce surface anomalies, voids, and impurities.

In 1990, Litton sued Honeywell, Louderback, and Ojai for infringement of the '849 reissue. Litton asserted Louderback had infringed the '849 reissue and breached their licensing and consulting agreements. Litton later amended the...

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