Buildex Inc. v. Kason Industries, Inc.

• Decision Date: 23 June 1988
• Docket Number: No. 87-1483,87-1483
• Parties: BUILDEX INCORPORATED, Plaintiff-Appellee, v. KASON INDUSTRIES, INC., Defendant-Appellant. Appeal
• Court: U.S. Court of Appeals — Federal Circuit

Page 1461

849 F.2d 1461

7 U.S.P.Q.2d 1325

BUILDEX INCORPORATED, Plaintiff-Appellee, v. KASON INDUSTRIES, INC., Defendant-Appellant.

Appeal No. 87-1483.

United States Court of Appeals,

Federal Circuit.

June 23, 1988.

Mark H. Sparrow, Jacobs & Jacobs, P.C., New York City, argued, for plaintiff-appellee. With him on the brief were Jesse D. Reingold and Stephen M. Haracz.

Paul J. Sutton, Sutton, Magidoff & Amaral, New York City, argued, for defendant-appellant. With him on the brief was Anthony Amaral, Jr.

Before RICH, SMITH, and NIES, Circuit Judges.

RICH, Circuit Judge.

Kason Industries, Inc. (Kason) appeals from the May 27, 1987, judgment of the United States District Court for the Eastern District of New York, 665 F.Supp. 1021, 4 USPQ2d 1803 (E.D.N.Y.1987), and the subsequent order of June 30, 1987, denying Kason's motion for relief from the judgment, id. 665 F.Supp. at 1030, holding that Kason infringed Buildex Inc.'s (Buildex) patent No. 4,150,265 ('265 patent) for a "Hinge Activated Switch" and rejecting all of Kason's defenses attacking the validity of the patent including failure to name a joint inventor, the "on sale" bar of 35 U.S.C. Sec. 102(b), obviousness under 35 U.S.C.

Sec. 103, failure to disclose the best mode under 35 U.S.C. Sec. 112, patent misuse, and inequitable conduct. We reverse the part of the judgment holding that the patent is not invalid because of the Sec. 102(b) "on sale" bar and remand.

Background

The '265 patent is for a self-closing, cam-lift hinge having a concealed light switch within the body of the hinge. The hinge is designed for use on the doors of refrigerators used in the food service industry. The application for the patent was filed on March 14, 1977, and the patent issued on April 17, 1979.

Standard-Keil Hardware Mfg. Co. (S-K) is a division of Buildex. S-K manufactures and sells hardware components for the food service industry. Traulsen & Co. (Traulsen) manufactures refrigerators and is a leading customer of S-K.

In 1975, Traulsen's Vice President of Manufacturing, Erich Maier, met with three S-K employees, including the named inventor of the '265 patent, Dermot Holden. Maier asked the S-K employees if it would be possible to incorporate a light switch into their cam-lift hinge. Holden and S-K's engineers worked on the problem and came up with the hinge described in the '265 patent.

Holden showed representatives of Traulsen a working model of the hinge in October, 1975, about five months before the critical date of March 14, 1976. At a later meeting, Ed Czerniawski, a purchasing agent at Traulsen, discussed with a representative of S-K the terms on which S-K would sell the hinge to Traulsen. In a Traulsen internal memorandum dated October 21, 1975, Czerniawski reported the substance of the discussion to Maier which included an estimated cost of $2.80 per unit. A "Quotation" dated November 3, 1975, from Irving Brown, Sales Manager of S-K, to Czerniawski, was also produced from Traulsen's corporate files. The quotation bears the notation "Terms of Sale" and lists a quantity of 50,000 pieces at a price of $2.84 each.

S-K agreed with Traulsen to file a patent application on the hinge and to sell the hinge exclusively to Traulsen. Traulsen in turn agreed to pay for certain tooling expenses incurred by S-K and to use the hinge for its own use exclusively.

Kason appeals from the judgment with respect to the "on sale" bar, best mode, and inequitable conduct, and asks that we remand the case for determination of its entitlement to attorney fees under 35 U.S.C. Sec. 285. Because we reverse the part of the judgment holding that the patent is not invalid under Sec. 102(b), we need not consider the best mode issue. We remand the case, however, for a redetermination of inequitable conduct and for consideration of Kason's request for attorney fees.

OPINION

A. "On Sale" Bar

An inventor loses his right to a patent if he has placed his invention "on sale in this country, more than one year prior to the date of the application for patent in the United States." 35 U.S.C. Sec. 102(b). The defendant, Kason, had the burden of proving that there was a definite sale or offer to sell more than one year before the application for the patent. See UMC Elecs. Co. v. United States, 816 F.2d 647, 656, 2 USPQ2d 1465, 1472 (Fed.Cir.1987), cert. denied, 108 S.Ct. 748, 98 L.Ed.2d 761 (1988). See generally R. Harmon, Patents and the Federal Circuit Sec. 3.4(c) (1988). The issue here is whether the district court correctly determined that Kason had not met that challenge.

The district court found that Kason failed to demonstrate by clear and convincing evidence that S-K offered the hinge for sale before March 14, 1976. Although the issue of whether an invention is "on sale" is ultimately a question of law, UMC, 816 F.2d at 657, 2 USPQ2d at 1472, the court's decision in this case turns in part on disputed facts, namely what S-K did by way of an offer to sell the hinge to Traulsen before the critical date.

1. "Clear and Convincing" Evidence of the Offer for Sale

Under 35 U.S.C. Sec. 282, a patent is presumed valid, and an attack on its validity requires proof of facts by "clear and convincing evidence or its equivalent, by whatever form of words it may be expressed." American Hoist & Derrick Co. v. Sowa & Sons, 725 F.2d 1350, 1360, 220 USPQ 763, 770 (Fed.Cir.), cert. denied, 469 U.S. 821, 105 S.Ct. 95, 83 L.Ed.2d 41 (1984). The "clear and convincing" standard of proof of facts is an intermediate standard which lies somewhere between "beyond a reasonable doubt" and a "preponderance of the evidence." Addington v. Texas, 441 U.S. 418, 425, 99 S.Ct. 1804, 1809, 60 L.Ed.2d 323 (1979); see also SSIH Equip. S.A. v. United States Int'l Trade Comm'n, 718 F.2d 365, 380, 218 USPQ 678, 691 (Fed.Cir.1983) (Nies, J., additional views). Although not susceptible to precise definition, "clear and convincing" evidence has been described as evidence which produces in the mind of the trier of fact "an abiding conviction that the truth of [the] factual contentions are 'highly probable.' " Colorado v. New Mexico, 467 U.S. 310, 316, 104 S.Ct. 2433, 2437-38, 81 L.Ed.2d 247 (1984); see also C. McCormick, Evidence Sec. 340, at 796 (2d ed. 1972).

The district court found that "the available and credible evidence about the Brown quotation and the course of dealings between S-K and Traulsen failed to provide clear and convincing proof that S-K offered the hinge for sale before March 14, 1976." This finding, as far as it rests on disputed issues of fact, is clearly erroneous. In fact, all available evidence points to the opposite conclusion, clearly and convincingly we think, that S-K offered the hinge for sale several months before the critical date.

At trial, Kason relied on the deposition testimony of Irving Brown to show the offer for sale. Brown testified as follows:

Q. What was the result of the conversations between Traulsen and yourself, and Traulsen and Dermot Holden and Frank Loikitz? What was the result of that series of communications?

A. Well, there were several prototypes that were made. They were presented with physical samples for evaluation and after the engineering people at Traulsen resolved, you know, or concluded what it was that they wanted incorporated in their hinge, we worked up a price and presented a price with Traulsen and we were successful in receiving the order.

....

Q. Did the prototypes work? Did Traulsen come back and indicate that they were satisfied?

A. Yes.

....

Q. The goal during this period that we're discussing now was, I take it, sales of these hinges by Standard-Keil to Traulsen, am I correct?

A. Exactly.

Q. Do you recall Standard-Keil after the delivery of these working prototypes from Standard-Keil to Traulsen making a quote to Traulsen with a price?

A. Yes.

Q. And the quote, I take it would have specified quantities as well?

A. Yes.

Q. Was the quotation accepted?

A. Yes.

These events are corroborated by the Czerniawski memorandum dated October 21, 1975. This memorandum shows that the terms of the offer for sale had been discussed by that date. In it, Czerniawski reported to Maier that the "[t]otal cost ... is estimated at $2.80/ea." and that samples of the hinge were available.

The most telling evidence, however, is the "Quotation" dated November 3, 1975, from Brown to Czerniawski. There is some dispute over this document because two different versions were produced from the respective records of Traulsen and S-K. Traulsen had only the first page of the two-page "Quotation" in its corporate files. This page, however, has the essential terms of quantity and price typed on it and bears the signature of Irving Brown. A copy of both pages of the quotation was produced from the personal files of Leonard Berger, a regional salesman of S-K, which he kept in his home. This version, marked "COPY" and "CONFIDENTIAL," is unsigned, but has the name "Irv Brown" typed below the signature line on page 2. Other than minor differences, such as handwritten notations, the first page of each is the same.

The district court accepted the authenticity of the Brown quotation and relied on it as "clear and convincing proof" in its later decision on the motion for relief from the judgment. The court did not give much weight to the quotation in its first opinion, however, as establishing an offer for sale, because there was "no testimony that it had been received by Traulsen before March 14, 1976 and no testimony as to when S-K began to ship the hinge with the switching feature to Traulsen."

It is not necessary that a sale be consummated for the bar to operate. Even if no delivery is made prior to the critical date, the existence of a sales contract or the signing of a purchase agreement prior to that date has been held to demonstrate an "on sale" status for the invention. J.A. LaPorte, Inc. v. Norfolk Dredging Co., 787 F.2d 1577, 1582-83, 229 USPQ 435, 439 (Fed.Cir.), cert. denied, ---...