DH Technology, Inc. v. Synergystex Intern., Inc.

• Citation: 47 USPQ2d 1865,154 F.3d 1333
• Decision Date: 01 September 1998
• Docket Number: 97-1280 and 97-1453,Nos. 97-1128,s. 97-1128
• Parties: DH TECHNOLOGY, INC. (now Axiohm Transaction Solutions, Inc.), Plaintiff-Appellant, v. SYNERGYSTEX INTERNATIONAL, INC., Defendant/Cross-Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals for the Federal Circuit

Page 1333

154 F.3d 1333

47 U.S.P.Q.2d 1865

DH TECHNOLOGY, INC. (now Axiohm Transaction Solutions Inc.), Plaintiff-Appellant, v. SYNERGYSTEX INTERNATIONAL, INC., Defendant/Cross-Appellant.

Nos. 97-1128, 97-1280 and 97-1453.

United States Court of Appeals Federal Circuit.

Sept. 1, 1998.

Kenneth B. Wilson, Wilson Sonsini Goodrich & Rosati, of Palo Alto, California, argued for plaintiff-appellant. Of counsel on the brief were Vera M. Elson and Jennifer A. Ochs.

Gregory B. Wood, Merchant, Gould, Smith, Edell, Welter & Schmidt, Los Angeles, California, argued for defendant/cross-appellant. With him on the brief was Albert F. Davis. Of counsel was Jai Ho Rho.

Before NEWMAN, PLAGER, and SCHALL, Circuit Judges.

SCHALL, Circuit Judge.

DH Technology, Inc. ("DHT") appeals from the decision of the United States District Court for the Northern District of California holding, on summary judgment in DHT's suit for patent infringement against Synergystex International, Inc. ("Synergystex"), that U.S. Patent No. 5,115,493 ("the '493 patent") is unenforceable because DHT incorrectly paid the small entity issue fee and because the statutorily-permitted time for correcting the error had passed. See DH Tech., Inc. v. Synergystex Int'l, Inc., 937 F.Supp. 902, 903, 910, 40 U.S.P.Q.2d 1754, 1755, 1761 (N.D.Cal.1996). ¹ DHT also appeals the district court's ruling requiring it to pay Synergystex's attorney's fees and costs associated with briefing an order to show cause, as a sanction for DHT's failure to comply with the district court's discovery order. See id. at 904, 40 U.S.P.Q.2d at 1756-57.

Synergystex cross-appeals, challenging the district court's decision that this was not an exceptional case and that denied Synergystex's motion, made pursuant to 35 U.S.C. § 285, for attorney's fees. See DH Tech., Inc. v. Synergystex Int'l, Inc., No. C-92-3307 WHO, slip op. at 1, 3 (N.D.Cal. May 28, 1997). Synergystex also challenges the district court's decision, on summary judgment, that it did not have an implied license under the '493 patent. See DH Tech., Inc. v. Synergystex Int'l, Inc., No. C-92-3307 WHO, slip op. at 1, 13-17, 21 (N.D.Cal. Nov. 28, 1995).

Because the district court erred in interpreting the law governing correction of the erroneous payment of the small entity issue fee, we vacate the grant of summary judgment of unenforceability and remand for further proceedings consistent with this opinion. We also vacate the district court's denial of exceptional case status and attorney's fees because the prevailing party, as that term is used in 35 U.S.C. § 285, has yet to be determined. However, we affirm the district court's decisions concerning the imposition of sanctions and Synergystex's lack of an implied license.

BACKGROUND

I.

On August 15, 1990, Ivan M. Jeanblanc ("Jeanblanc"), Stephen E. Hutchison, Mark K. Virkus, and Ronald J. Johnsen filed U.S. Patent Application 07/567,839 ("the '839 application"), which disclosed a continuous laser printer that can print successive forms of varying lengths. On September 21, 1990, the inventors assigned the '839 application, along with two related applications, to The Identification Business, Inc. ("IBI"). At that time Jeanblanc owned IBI, and IBI employed all of the named inventors. That same day, Jeanblanc executed a "Verified Statement (Declaration) Claiming Small Entity Status (37 CFR 1.9(f))--Small Business Concern," which provided:

I hereby declare that the above identified small business concern [i.e., IBI] qualifies as a small business concern as defined in 13 CFR 121.3-18, and reproduced in 37 CFR 1.9(d), for purposes of paying reduced fees under section 41(a) and (b) of Title 35, United States Code, in that the number of employees of the concern, including those of its affiliates, does not exceed 500 persons. For purposes of this statement, (1) the number of employees of the business concern is the average over the previous fiscal year of the concern of the persons employed on a full-time, part-time or temporary basis during each of the pay periods of the fiscal year, and (2) concerns are affiliates of each other when either, directly or indirectly, one concern controls or has the power to control the other, or a third party or parties controls or has the power to control both.

I hereby declare that rights under contract or law have been conveyed to and remain with the small business concern identified above [i.e., IBI] with regard to the invention....

On November 2, 1990, DHT acquired IBI. DHT manufactures and sells commercial laser printers and accessories. Pursuant to the purchase agreement, by assignment, DHT acquired the '839 application. Neither the assignment from the inventors to IBI nor the assignment from IBI to DHT was recorded in the United States Patent and Trademark Office ("PTO") at that time.

On October 18, 1991, the PTO, in connection with the '839 application, issued a "Notice of Allowance and Issue Fee Due," which provided:

HOW TO RESPOND TO THIS NOTICE:

Review the SMALL ENTITY Status shown above.

If the SMALL ENTITY is shown as YES, verify your current SMALL ENTITY status:

A. If the Status is changed, pay twice the amount of the FEE DUE shown above and notify the Patent and Trademark Office of the change in status, or

B. If the Status is the same, pay the FEE DUE shown above.

The notice showed that small entity status was claimed and that the issue fee was due by January 21, 1992. On January 10, 1992, Frank R. Agovino ("Agovino"), the attorney prosecuting the '839 application, paid the small entity issue fee ($525) on behalf of Jeanblanc. Agovino checked the box on the "Issue Fee Transmittal" sheet stating "This application is NOT assigned." The '839 application issued as the '493 patent, entitled "CONTINUOUS LASER PRINTER FOR PRINTING OVER PAGE BOUNDARIES," on May 19, 1992. ²

On August 14, 1992, Agovino sent the assignments, from the inventors to IBI and from IBI to DHT, to the PTO, with instructions to record the assignment to IBI first. The PTO recorded the assignments in the order requested, effective August 14, 1992.

II.

On August 18, 1992, DHT filed suit against Synergystex, a competitor in the continuous form laser printer market. On August 20, 1992, DHT filed an amended complaint alleging that Synergystex had willfully infringed, contributorily infringed, or induced infringement of the '493 patent. On October 9, 1992, Synergystex filed its answer, in which it denied infringement, alleged that the '493 patent was invalid and unenforceable on various grounds, and counterclaimed for declaratory judgment. On July 21, 1993, Synergystex moved for summary judgment that the '493 patent was invalid, that the patent was unenforceable due to inequitable conduct, and that it had not infringed the patent. On August 26, 1993, DHT moved for summary judgment on its infringement claims. In an April 14, 1994 opinion, the district court denied both parties' motions. See DH Tech., Inc. v. Synergystex Int'l, Inc., No. C 92-3307 BAC, 1994 WL 163917, slip op. at * 1, * 3 (N.D.Cal. Apr. 14, 1994).

During an October 19, 1994 case management conference, Synergystex alleged, for the first time, "that the ['493] patent is invalid and unenforceable because DHT intentionally deceived the PTO by paying a small entity issue fee when DHT did not qualify as a small entity." DH Tech., 937 F.Supp. at 904, 40 U.S.P.Q.2d at 1756. On February 16, 1995, the parties again moved for summary judgment on the same issues that had been previously presented, with DHT additionally moving for summary judgment on Synergystex's implied license defense. Synergystex had not pled the implied license defense in its answer to the amended complaint and did not raise the defense until September 16, 1993, nearly two months after the close of discovery. See DH Tech., No. C-92-3307 WHO, slip op. at 13 n.4 (Nov. 28, 1995). On February 16, 1995, Synergystex moved for summary judgment that the patent was invalid and unenforceable on the ground that DHT had fraudulently paid the small entity issue fee.

In a November 28, 1995 ruling, the district court, inter alia, denied Synergystex's motion for summary judgment that the '493 patent was unenforceable because DHT had fraudulently paid the small entity issue fee despite not being a small entity. See id. at 1, 8, 13. The court did so because it determined, as far as the point was concerned, that genuine issues of material fact existed. See id. at 13. The district court granted DHT's motion for summary judgment on Synergystex's implied license defense on the ground that the "evidence offered by Synergystex on this defense [was] insufficient as a matter [of] law." Id. at 17. The court also denied the parties' motions for summary judgment on the infringement issue and granted summary judgment for DHT on certain of Synergystex's invalidity defenses. See id. at 21.

While the summary judgment motions were pending, on September 27, 1995, DHT erroneously paid the first maintenance fee for the '493 patent at the small entity rate. See DH Tech., 937 F.Supp. at 904, 40 U.S.P.Q.2d at 1756. DHT notified the PTO of the error on February 26, 1996. At that time, DHT corrected the erroneous underpayment and relinquished its claim of small entity status. The PTO accepted DHT's correction without issue, and this correction is not at issue in this appeal.

III.

On January 26, 1996, Synergystex filed a motion for leave to propound one additional discovery request relating to DHT's status as a small entity. Although the discovery cutoff date of July 15, 1993 had long past, the district court granted the request during a February 29, 1996 hearing. This oral ruling later was embodied in a March 5, 1996 order, which provided:

1. Defendant Synergystex is granted leave to propound a single additional discovery request upon plaintiff DHT: "Produce documents sufficient to show the number of employees of DH Technology, Inc. and its affiliates, including the full...