Lundy Elec. & Sys., Inc. v. Optical Recognition Sys., Inc.

• Decision Date: 15 June 1973
• Docket Number: Civ. A. No. 141-72.
• Court: U.S. District Court — Eastern District of Virginia
• Parties: LUNDY ELECTRONICS & SYSTEMS, INC., Plaintiff, v. OPTICAL RECOGNITION SYSTEMS, INC., Defendant.

362 F. Supp. 130

LUNDY ELECTRONICS & SYSTEMS, INC., Plaintiff, v. OPTICAL RECOGNITION SYSTEMS, INC., Defendant.

Civ. A. No. 141-72.

United States District Court, E. D. Virginia, Alexandria Division.

June 15, 1973.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Thomas C. Brown, Jr., E. Waller Dudley, Boothe, Prichard & Dudley, Alexandria, Va., George Whitney, Brumbaugh, Graves, Donohue & Raymond, New York City, for Lundy Electronics & Systems, Inc.

Larry Suiters, Arlington, Va., Jim Zegeer, Browne, Beveridge, DeGrandi & Kline, Jack L. Lahr, Arent, Fox, Kintner, Plotkin & Kahn, Washington, D. C., for Optical Recognition Systems, Inc.

MEMORANDUM OPINION AND ORDER

BRYAN, District Judge.

This is a patent infringement action. The plaintiff, Lundy Electronics & Systems, Inc. (Lundy), a New York corporation with its principal office and place of business at Glen Head, New York, has asserted that the defendant, Optical Recognition Systems, Inc. (ORS), a Delaware corporation with its principal office and place of business at Reston, Virginia, is infringing U. S. Patent No. 3,535,682 (the Patent or Dykaar) by manufacturing, using and selling machines embodying the claimed subject matter of the Patent. Lundy is the assignee and owner of all interest in that patent.

ORS has denied that it infringes the Patent and has counterclaimed for a judgment declaring the Patent invalid, not infringed and unenforceable.

Jurisdiction is founded upon 28 U.S.C. §§ 1338(a), 2201 and 2202. Venue is founded upon 28 U.S.C. § 1400(b).

The trial began on December 4, 1972 where the issues of the litigation were limited to claims 1-4, 9, 11-16, 23, 24, 28 and 30. Following the trial the plaintiff was allowed to take further de bene esse depositions of certain witnesses whose de bene esse depositions had been offered at trial by the defendant. Those were concluded on February 5, 1973, and post-trial briefs were filed on February 26, 1973.

Lundy has for some years produced and sold a reader for magnetic ink character recognition (MICR). This device "reads" the characters which we all now find imprinted on the lower edge of our checks and deposit slips. Oversimplified, the characters are imprinted on the checks with ink containing a magnetizable substance. These characters are specifically designed so that when they pass under a magnetic charging head and a transducer, from left to right (contrary to the embodiment, Fig. 2, of the Patent which shows passage from right to left), an analog waveform is generated. There are fourteen possible characters comprising what is known as the E-13B font.¹ Ideally each character when read produces a distinctive analog waveform. The distinctive waveform generated by the character "O" is shown in Fig. 2 of the embodiment of the Patent. P.Ex. 14. It and the others are shown in P.Ex. 15A, attached as Appendix I.² This analog electrical signal is converted, through a complex electronic circuitry, to digital signals representative of information peculiar to the character read. Because of extraneous influences as well as such imperfections in the printing as uneven density of ink and skew of characters, the "ideal" is rarely met. For that reason a reconstruction of the character must be attempted from those portions of the character which are typical of the ideal. The aim of Lundy and the accused device is to accomplish this.

Character recognition is accomplished by comparing the amplitudes of portions of a character's waveform to a previous or other portion of the waveform. Information bearing digital signals resulting from and representative of these comparisons are generated. They can then be utilized to generate signals identifying the waveforms (characters) in question. P.Ex. 14; Schwarz Tr. 121-129.

ORS has in the past manufactured and sold machines for the reading of detectable characters on documents such as checks. Its system, however, reads the characters optically rather than by MICR. As an adjunct of its optical reader it developed a MICR reader which is the accused device in this action.

For reasons that are later stated, the Court concludes that the Patent is valid, but that in light of the prior art, particularly the Perotto patent (Perotto) (D.Ex. 1), what the inventors have done "works only a slight step forward." Consequently their patent should be given a "narrow scope" resulting in no infringement unless the machine of ORS is an "approximate copy" of the Lundy patent. Under that view there is no infringement here. Eibel Co. v. Paper Co., 261 U.S. 45, 63, 43 S.Ct. 322, 67 L.Ed. 523 (1923); Hazeltine Research, Inc. v. Firestone Tire and Rubber Co., 468 F.2d 1277 (4th Cir. 1972).

If the Lundy patent is a significant enough improvement over Perotto to sustain the Lundy patent against an attack on the ground that it was anticipated by Perotto, then the device of ORS is significantly enough different from Lundy to withstand any charge by the latter of infringement. The principal in Perotto, Lundy and ORS of recognizing a waveform by comparison of one or more samplings thereof with another sampling or portion is basically the same. However, the method by which this is accomplished and the degree of accuracy resulting therefrom are what distinguish the three.

In the Court's view, Lundy ought not to be allowed to stand pat with its device and stifle further improvements by invoking a broad interpretation of the claims of its patent.

THE PLAINTIFF AND THE PATENT IN SUIT

Until 1963, Lundy's business consisted principally of electronic defense systems unrelated to the subject matter of this litigation. In October 1963, one David E. Dykaar proposed that a magnetic ink character recognition (MICR) system for use in a bank check sorter might be a possible area of diversification for Lundy, and work was begun on this project in December 1963. A preproduction machine was shown to the industry in early 1965 with the hope that a compact, relatively inexpensive reader would meet a demand as yet unfilled by the large, expensive, high-speed readers then available. Barbato Tr. 42. This machine was well received and interest was expressed by International Business Machine Corporation (IBM) and National Cash Register Company (NCR). A patent application was filed on June 1, 1965, based on this preproduction machine including the MICR reader and various electro-mechanical features of the document handling and sorting apparatus. This resulted in U. S. Patent No. 3,363,756. P.Ex. 15.

IBM and Lundy jointly conducted tests on the preproduction machine and it was determined that when nonuniform characters of the E-13B font (such as may be expected to be encountered in actual commercial applications) were used, the performance of the machine was unsatisfactory by IBM standards. Accordingly work was begun by Lundy on the development of an improved reader in March or April of 1965. A preproduction or breadboard system was first tested in August and September of 1965 and was found to perform better than the previous device and to satisfy the commercial standards of IBM. The patent application culminating in the Patent was filed on this system on December 10, 1965. Barbato Tr. 7-19, 42, P. Ex. 1.

PROSECUTION HISTORY

The history of the Patent indicates that the application as filed contained twenty-six claims plus one "omnibus" claim 27 included for the purposes of possibly filing corresponding foreign applications. P.Ex. 13. Of the first twenty-six claims, claims 1, 5 and 9 were independent method claims and claims 10, 11, 16, 22, 25 and 26 were independent apparatus claims. The remaining seventeen claims were drafted in dependent form.

On December 13, 1967, a voluntary preliminary amendment was filed by Lundy's attorneys prior to any official action by the Patent Office on the merits of the application. All of the claims were revised and amended by the insertion or deletion of certain claim language. The omnibus claim 27 was cancelled and four new dependent claims, 28-31, were added. In the remarks accompanying the preliminary amendment it was suggested to the Examiner that he consider the seven United States patents and four foreign patents listed. P. Ex. 13, pp. 29-36. Of the seven United States patents listed, four³ were classified officially by the Patent Office in class 340, subclass 146.3, the same subclass in which the Examiner indicated he conducted his search and in which the Patent is now classified. D.Ex. 11.

A search was conducted by the Examiner in subclass 340-146.3 on October 21, 1968. P.Ex. 13 (last page, search notes).

In the first Official Action by the Patent Office, dated December 9, 1968, the Examiner acknowledged receipt of the preliminary amendment. P.Ex. 13, pp. 39-44. In addition, three claims were allowed and six other claims were indicated as being allowable if amended to further specify how the reference voltage level was a function of the analog signal and how identification is made. The remaining claims were rejected by the Examiner as unpatentable over four new references not listed in the acknowledged preliminary amendment, the principal two of which were classified in subclass 340-146.3.

In a response to the first Official Action filed March 10, 1969, all of the claims (except for the three previously allowed claims) were amended and a detailed discussion was presented by Lundy's attorneys as to how the previously rejected (but now amended) claims were distinguished from the four references cited by the Examiner. P.Ex. 13, pp. 45-69.

In a second Official Action dated May 14, 1969, the Examiner allowed ten more claims (Patent claims 9, 10, 12-17, 28 and 29). P.Ex. 13, pp. 70-72. In addition, twelve claims were rejected under 35 U.S.C. § 112 as being vague and indefinite for specific reasons and nine claims were rejected as being obvious over a newly cited reference (a patent to Bartz officially classified as a cross-reference in class...