Argus Chemical Corp. v. Fibre Glass-Evercoat Co., Inc.

• Decision Date: 26 February 1987
• Docket Number: No. 86-1449,GLASS-EVERCOAT,86-1449
• Citation: 1 U.S.P.Q.2d 1971,812 F.2d 1381
• Parties: 1987-1 Trade Cases 67,586, 1 U.S.P.Q.2d 1971 ARGUS CHEMICAL CORPORATION, Appellee, v. FIBRECOMPANY, INC., Appellant. Appeal
• Court: U.S. Court of Appeals — Federal Circuit

Page 1381

812 F.2d 1381

1987-1 Trade Cases 67,586, 1 U.S.P.Q.2d 1971

ARGUS CHEMICAL CORPORATION, Appellee, v. FIBRE GLASS-EVERCOAT COMPANY, INC., Appellant.

Appeal No. 86-1449.

United States Court of Appeals,

Federal Circuit.

Feb. 26, 1987.

Mario A. Martella, Beehler, Pavitt, Siegemund, Jagger, Martella & Dawes, Los Angeles, Cal., argued for appellant. With him on the brief was Maurice B. Pilosof, Los Angeles, Cal.

George M. Schwab and Albert J. Hillman, Townsend and Townsend, San Francisco, Cal., argued for appellee.

Before FRIEDMAN, DAVIS and NIES, Circuit Judges.

FRIEDMAN, Circuit Judge.

This is an appeal from an order of the United States District Court for the Central District of California, dismissing an antitrust counterclaim to a suit for patent infringement and denying attorney's fees. 645 F.Supp. 15, 230 USPQ 717 (1986). We affirm.

I

A. The appellee, Argus Chemical Corporation (Argus), in 1978 filed suit in the United States District Court for the Central District of California, charging the appellant, Fibre Glass-Evercoat Company, Inc.

(Fibre Glass), with infringing two of its patents on homogeneous pigmented peroxide compositions. The two patents are known as the Pigmentation and the Homogeneous Patents. The compositions are used as a "hardener" for automobile body putty.

Claims of the patents involved in this case were limited to "wet" compositions of the product. As this court explained in the prior appeal in this case:

The claims of the Pigmentation Patent as originally written read equally well on both "dry" and "wet" compositions of the product. Upon confirming that sales had been made of dry pigmented benzoyl peroxide compositions prior to August 7, 1960, so as to constitute an "on sale" time bar under 35 U.S.C. Sec. 102(b), the attorney handling the application amended the claims before initial examination, to avoid reading directly on any of the dry products sold, and, thereafter, all claims to dry compositions were dropped. The examiner was never informed of the sales of any dry composition.

Additional sales prior to the March 14, 1961, critical date were not disclosed in connection with the Homogeneous Patent.

759 F.2d 10, 12, 225 USPQ 1100, 1101, cert. denied, --- U.S. ----, 106 S.Ct. 231, 88 L.Ed.2d 230 (1985).

In defense, Fibre Glass challenged the validity of the patent and denied infringement. Fibre Glass also filed a counterclaim alleging that Argus had attempted to monopolize peroxide- and pigment-containing hardeners (paragraph 20) by, among other acts, seeking to enforce patents "known by plaintiff to be invalid" (paragraph 14), in violation of the antitrust laws.

After a bench trial, the district court held (1) that Fibre Glass had not shown that the patents were invalid, and (2) that Fibre Glass had infringed the patents. The court held that "there was no breach of an applicant's duty of candor during examination under the standard of the early '60's by Argus's failure to disclose the subject sales." 759 F.2d at 12, 225 USPQ at 1102.

Although the court made detailed findings of fact and conclusions of law on the patent issues, its sole discussion of the antitrust counterclaim was contained in finding 45, which stated:

No basis has been found for defendant's antitrust counterclaim resulting from acts after December 17, 1968 [the date on which the parties entered into mutual general releases (fdg. 44) ], nor, for that matter, before that date.

B. On appeal, this court held that the patents were unenforceable because of Argus' inequitable conduct before the Patent Office in failing to disclose the sales of the composition that had been made more than one year before the filing of the patent application. The court rejected Argus' "good faith" defense:

Argus also attempts to avoid a holding of inequitable conduct by reason of the subjective "good faith" of its attorney, a defense applicable in common law fraud cases. It is Argus's position that the precedent of this court is in error by failing to recognize that "fraud" is an intentional tort and that the "good faith" of the party charged is always a complete defense....

Contrary to Argus's view, conduct before the PTO which may render a patent unenforceable is broader than the common law tort of fraud....

Counsel's subjective "good faith" does not ... negate inequitable conduct. Rather, the question ... is whether a reasonable person in the position of Argus's counsel knew or should have known that the information was material....

Because the withheld information on sales was clearly material, and Argus's attorney should have known of its importance to the PTO's consideration, inequitable conduct under the precedent of this court has been established.

759 F.2d at 14-15, 225 USPQ at 1103-04.

The court stated that, because of its holding that "the patents are unenforceable due to inequitable conduct, we do not need to address the other substantive issues of validity or infringement." 759 F.2d C. Following the remand, Argus moved for summary judgment on its antitrust counterclaim and for costs and attorney fees. The district court dismissed the counterclaim as "without merit." It stated that Argus' antitrust claims

at 15, 225 USPQ at 1104. The court did not refer to the antitrust counterclaim. It remanded the case for further proceedings in accordance with that opinion.

speak in terms of fraud, bad faith, and/or specific intent. These issues are issues of fact, as to which this court has not made a finding.

Upon reviewing the evidence in this case, the court finds that the plaintiff pursued the patent process and the infringement litigation in the good faith belief that its claims were legitimate, that the failure to disclose the prior sales to the PTO was done in reliance upon what was then conceived to be the proper interpretation of the patent laws, and that there was no fraud involved in the patent process.

These findings are not inconsistent with the opinion of the appellate court, for although the court held the patents to be unenforceable, the ground therefore was specified to be "inequitable conduct before the patent and trademark office." The court points out clearly that a holding of inequitable conduct is by no means equivalent to a holding of fraud or bad faith.

645 F.Supp. at 17, 230 USPQ at 719 (citations omitted).

The court also denied attorney fees. It stated that for a case to be "exceptional" under 35 U.S.C. Sec. 285 (1982)--the basis for awarding attorney fees--"there must be proof of actual wrongful intent or gross negligence." The court concluded:

In view of my findings that the plaintiff pursued this litigation in good faith belief that it had lawfully complied with all the rules of the patent office, and that its failure to make required disclosures to the patent office was the result of reliance upon an interpretation of the patent statutes believed at that time to be correct, I do not find this to be an exceptional case within the meaning of section 285.

645 F.Supp. at 18, 230 USPQ at 719.

II

Both parties contend that in the prior appeal we decided the antitrust issue. Fibre Glass argues that we tacitly overturned the district court's initial rejection of the antitrust counterclaim in finding 45; Argus contends that we tacitly approved it.

Our prior opinion did not ever refer to the antitrust counterclaim, much less indicate any views about or tacitly decide it. There was no basis or justification for either counsel to make the argument.

III

A. The theory of Fibre Glass' antitrust claim is that announced by the Supreme Court in Walker Process Equipment, Inc. v. Food Machinery & Chemical Corp., 382 U.S. 172, 86 S.Ct. 347, 15 L.Ed.2d 247, 147 USPQ 404 (1965). Walker Process, like the present case, was a patent infringement suit in which the accused infringer filed an antitrust counterclaim. The Court described the antitrust claim as

charg[ing] that Food Machinery had "illegally monopolized interstate and foreign commerce by fraudulently and in bad faith obtaining and maintaining ... its patent ... well knowing that it had no basis for ... a patent." It alleged fraud on the basis that Food Machinery had sworn before the Patent Office that it neither knew nor believed that its invention had been in public use in the United States for more than one year prior to filing its patent application when, in fact, Food Machinery was a party to prior use within such time.

382 U.S. at 174, 86 S.Ct. at 348, 147 USPQ at 405-06.

The district court dismissed the antitrust counterclaim, and the court of appeals affirmed. The Supreme Court reversed.

The Court stated that the question was "whether the maintenance and enforcement of a patent obtained by fraud on the Patent Office may be the basis of an action In so holding, the Court stated that one element of the counterclaim "is the fraudulent procurement of a patent," 382 U.S. at 176, 86 S.Ct. at 349, 147 USPQ at 406, that the "gist" of the counterclaim was that the patentee "obtained its patent by fraud," id., that the Court was "deal[ing] only with a special class of patents, i.e., those procured by intentional fraud," id., and that the counterclaim alleged that the patentee "obtained the patent by knowingly and willfully misrepresenting the facts to the Patent Office." 382 U.S. at 177, 86 S.Ct. at 350, 147 USPQ at 407.

                under Sec. 2 of the Sherman Act."    382 U.S. at 172, 86 S.Ct. at 348, 147 USPQ at 145.  Accepting as true "the allegations of the counterclaim, as to the fraud practiced upon the Government by Food Machinery," 382 U.S. at 174, 86 S.Ct. at 348, 147 USPQ at 406, the Court "concluded that the enforcement of a patent procured by fraud on the Patent Office may be violative of Sec. 2 of the Sherman Act provided the other elements necessary to a Sec. 2 case are present."    Id
                

The Walker Process opinion makes it crystal clear that the reason the counterclaim there stated a valid antitrust claim was because it alleged that...