Atlas Chemical Industries, Inc. v. Moraine Products

• Decision Date: 12 December 1974
• Docket Number: 74--1142,Nos. 74--1141,s. 74--1141
• Parties: ATLAS CHEMICAL INDUSTRIES, INC., Plaintiff-Appellant, Cross-Appellee, v. MORAINE PRODUCTS, Defendant-Appellee, Cross-Appellant.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 1

509 F.2d 1

184 U.S.P.Q. 281

ATLAS CHEMICAL INDUSTRIES, INC., Plaintiff-Appellant, Cross-Appellee, v. MORAINE PRODUCTS, Defendant-Appellee, Cross-Appellant.

Nos. 74--1141, 74--1142.

United States Court of Appeals, Sixth Circuit.

Dec. 12, 1974.

Gilbert Gove, Miller, Canfield, Paddock & Stone, Detroit, Mich., Arthur G. Connolly, William J. Wier, Jr., Connolly, Bove & Lodge, James M. Mulligan, Jr., Wilmington, Del., for plaintiff-appellant.

Richard D. Grauer, Bernard Cantor, Cullen, Settle, Sloman & Cantor, Detroit, Mich., Alvin D. Shulman, Allen H. Gerstein, Merriam, Marshall, Shapiro & Klose, Chicago, Ill., for defendant-appellee.

Before PHILLIPS, Chief Judge, ENGEL, Circuit Judge, and McALLISTER, Senior Circuit Judge.

PHILLIPS, Chief Judge.

This is an appeal from summary judgment in a patent suit filed by a licensee (Atlas) against the licensor (Moraine), in which the District Court declared the licensor's patent No. 3,422,189 to be invalid. The District Court ordered that royalties which had been escrowed during the period in which the action was pending be paid over to the licensor, and assessed certain pre-litigation costs against the licensee. Reference is made to the decision of the District Court, reported at 350 F.Supp. 353 (E.D.Mich.1972) for a discussion of the complex details of the prosecution of the patent application before the Patent Office, and for the details of the series of license agreements which were negotiated both before and after the issuance of the patent. We affirm the finding of invalidity, and reverse as to the escrowed royalties and pre-litigation costs.

This suit began as an action by Atlas Chemical Industries, Inc. (Atlas), a licensee, to declare invalid a patent held by its licensor, Moraine Products (Moraine). The action was initiated on authority of Lear v. Adkins, 395 U.S. 653, 89 S.Ct. 1902, 23 L.Ed.2d 610 (1969). The invention described in the licensed patent concerns the use in humans of a drug formula comprising a mixture of organo-polysiloxane and finely divided silica, marketed by Dow Corning Corporation as Antifoam A. This composition, also known commercially as 'simethicone,' originally was used to treat cattle bloat. Dr. Joseph H. Rider, the patentee who assigned his patent to Moraine, discovered that this composition also could be used to alleviate flatulence or gas in the gastrointestinal tract of humans.

When Atlas originally sued to invalidate the patent it offered in its complaint to pay royalties into escrow during the pendency of the suit. The District Court so ordered. A total of $291,808 in royalties was paid in escrow.

Following extensive discovery by both parties, Atlas moved for summary judgment of invalidity on the basis that there was no genuine issue of material fact and that the patent was invalid because of a prior use. 35 U.S.C. § 102(b). Moraine filed a cross motion for dismissal of the complaint on account of the alleged 'unclean hands' of Atlas. Moraine claimed that Atlas had known of the prior use which invalidated the patent, and had withheld that information from Moraine and from the Patent Office during the pendency of the patent application.

The District Court found that there was no material dispute of fact as to the prior use and granted summary judgment in favor of Atlas on the issue of validity. Moraine's cross motion was denied on the theory that the public interest precluded a dismissal, since to hold otherwise would be to validate an invalid patent by estoppel or misconduct. 350 F.Supp. at 356.

The District Court was convinced that the 'unclean hands' defense raised by Moraine had its application in other areas. It was held that, even though no counterclaim had been filed, '(c)ertainly Moraine should be made as whole as possible. Atlas should be required to pay damages to Moraine.' Id. at 359. Certain costs and expenses which were incurred in procuring and defending the patent were assessed against Atlas in the sum of $139,495.40. The escrowed royalty payments, totaling $291,808, were also ordered paid over to Moraine.

I.

The first issue concerns the disposition of the case by summary judgment. We recently have treated summary judgment in patent cases in detail and have stated that this procedure 'may be a useful tool in cases where the validity of a patent is involved' but that it 'should be used sparingly.' Tee-Pak, Inc. v. St. Regis Paper Co., 491 F.2d 1193, 1195--1196 (6th Cir. 1974).

In Tee-Pak we made the following comment concerning the statutory presumption of validity:

'An additional consideration that is present in patent cases is the statutory presumption of validity. A patent is presumed valid and the burden of proving its invalidity rests squarely on the party challenging it. 35 U.S.C. § 282. Even though this presumption may be weakened by the failure of the Patent Office to consider all pertinent art, the degree by which it is weakened depends on a balancing of the pertinence of the newly cited art with the pertinence of the art considered by the Patent Office. Thus, unless the presumption has been destroyed, it is a relevant factor for the court to consider in ruling on a motion for summary judgment.' 491 F.2d at 1196.

Since the ground of invalidity asserted in the present case does not touch on any area of inquiry considered previously by the Patent Office, there are no balancing factors here which weigh in favor of the presumption in disposing of the motion for summary judgment.

After reviewing the record in the present case, even with the abundance of caution which is required in relation to summary judgment, we agree with the District Court that there is 'no genuine issue as to any material fact,' Rule 56, Fed.R.Civ.P., and that the patent is invalid for prior public use.

Under 35 U.S.C. § 102(b) a patent is invalid if 'the invention was . . . in public use . . . more than one year prior to the date of the application for patent in the United States.' 'Public use' is defined as 'any non-secret use of a completed and operative invention in its natural and intended way.' FMC Corp. v. F. E. Myers & Bro. Co., 384 F.2d 4, 9 (6th Cir. 1967), cert. denied, 390 U.S 988, 88 S.Ct. 1183, 19 L.Ed.2d 1291 (1968); see Dunlop Co., Ltd. v. Kelsey-Hayes Co., 484 F.2d 407 (6th Cir. 1973), cert. denied, 415 U.S. 917, 94 S.Ct. 1414, 39 L.Ed.2d 471 (1974); Minnesota Mining & Mfg. Co. v. Kent Indus., Inc., 409 F.2d 99, 100 (6th Cir. 1969).

The evidence in this case shows that the patent to the composition per se had been held by Dow Corning Corporation, but that its utility had been limited essentially to the treatment of cattle bloat. Dow Corning marketed this material under the name Antifoam A to Dr. Rider, one of the founders of Moraine and the patentee of the use of Antifoam A in humans. Prior to the time that Dr. Rider filed his application, and unknown to Dr. Rider, this same material was being sold to Leonard Bergstein, a pharmacist of Midland, Michigan. Since Dr. Rider's application was filed on January 2, 1959, patent invalidity could be proved by a public use prior to January 2, 1958. Our examination of the record convinces us that the District Court was correct in concluding that:

'The record is without dispute that during the summer and fall of 1957 a druggist named Bergstein in Midland, Michigan, marketed Antifoam A prepared by the Dow Corning Corporation as a method of treating intestional gas in humans. It indicates without dispute that prescriptions for this product were filled, sold and the product was used by patients in Midland prior to January 2, 1958.' 350 F.Supp. at 355.

Moraine contends that Bergstein's use of the product was experimental and, therefore, did not constitute a prior public use. See New Jersey Wood Paving Co. v. American Nicholson Pavement Co. (reported as Elizabeth v. Pavement Co.), 97 U.S. 126, 24 L.Ed. 1000 (1877).

In Dunlop Co. v. Kelsey-Hayes Co., supra, 484 F.2d at 413--414, this court held that in the face of a 'prima facie demonstration of prior use, the inventor then has the burden of proving that this use 'was not of a functionally operative device, or was substantially used for experimental or testing purposes."

This exception is to be guarded closely. '(T)he use of a single specimen, even in a factory and in the presence of a few employees, may be public.' A. Schrader's Sons, Inc. v. Wein Sales Corp., 9 F.2d 306, 308 (2d Cir. 1925) (L. Hand, J.); see Consolidated Fruit Jar Co. v. Wright, 94 U.S. 92, 24 L.Ed. 98 (1876). Likewise, a single instance of placing the invention on sale is sufficient to invalidate the patent. Smith & Griggs Mfg. Co. v. Sprague, 123 U.S. 249, 258, 8 S.Ct. 122, 31 L.Ed.2d 141 (1887); Minnesota Mining & Mfg. Co. v. Kent Indus., Inc., supra, 409 F.2d at 100.

The District Court found that '(t)he product was prescribed by physicians, sold by Bergstein and used by patients to treat physical disorders,' and that '(t)he record . . . is clear beyond any doubt that Bergstein's use was not experimental.' This finding is supported fully by the record. ¹

Since the record demonstrates that there was prior public use, and that the use was not privileged or 'experimental,' we agree with the conclusion of the District Court that the patent is invalid under 35 U.S.C. § 102(b).

II.

Although the District Judge correctly decided the issue of the invalidity of the patent, he erred in directing that the accumulated royalties held in escrow be paid over to the licensor, Moraine. This arises from a misinterpretation of the decisions of this court in Troxel Manufacturing Co. v. Schwinn Bicycle Co., 465 F.2d 1253 (1972) (hereinafter referred to as Troxel I) and Troxel Manufacturing Co. v. Schwinn Bicycle Co., 489 F.2d 968 (1973), cert. denied, 416 U.S. 939, 94 S.Ct. 1942, 40 L.Ed.2d 290 (1974) (hereinafter referred to as Troxel II.) The basic error of the District Court is reflected in this statement: 'Troxel permits the licensor to keep the royalties...