Digital Control, Inc. v. Charles Mach. Works

• Decision Date: 08 February 2006
• Docket Number: No. 05-1128.,05-1128.
• Citation: 437 F.3d 1309
• Parties: DIGITAL CONTROL INCORPORATED and Merlin Technology Inc., Plaintiffs-Appellants, v. The CHARLES MACHINE WORKS (also known as DitchWitch), Defendant-Appellee.
• Court: U.S. Court of Appeals — Federal Circuit

437 F.3d 1309

DIGITAL CONTROL INCORPORATED and Merlin Technology Inc., Plaintiffs-Appellants, v. The CHARLES MACHINE WORKS (also known as DitchWitch), Defendant-Appellee.

No. 05-1128.

United States Court of Appeals, Federal Circuit.

February 8, 2006.

J. Michael Jakes, Finnegan, Henderson, Farabow, Garrett & Dunner, L.L.P., of Washington, DC, argued for plaintiffs-appellants. Of counsel on the brief were Jeff E. Schwartz, Schwartz Sung & Webster, of Washington, DC, and Michael J. Bettinger, Preston Gates & Ellis, L.L.P., of San Francisco, California. Of counsel was Krista L. Lynch, Preston Gates Ellis & Rouvelas Meeds LLP, of Washington, DC.

Robert D. Tomlinson, Tomlinson & O'Connell, P.C., of Oklahoma City, Oklahoma, argued for defendant-appellee. With him on the brief were Mary E. Nelson, McKinney & Stringer, P.C., of Oklahoma City, Oklahoma; Gary S. Peterson; Sean V. O'Connell; and Lawrence F. Grable, Tomlinson & O'Connell, P.C., of Oklahoma City, Oklahoma.

Before MICHEL, Chief Judge, CLEVENGER, Senior Circuit Judge, and SCHALL, Circuit Judge.

CLEVENGER, Senior Circuit Judge.

Plaintiffs-Appellants Digital Control, Inc., and Merlin Technology, Inc. (collectively, DCI) appeal from the decision of the district court for the Western District of Washington finding that United States Patent No. 5,767,678 (the '678 patent), No. 6,008,651 (the '651 patent), and No. 6,232,780 (the '780 patent) (collectively, the patents in suit) are unenforceable for inequitable conduct.¹ Digital Control. Inc. v. The Charles Mach. Works, No. C03-0103P (W.D. Wash. June 9, 2004) (Bench Trial).

The district court had previously awarded partial summary judgment to Defendant-Appellee The Charles Machine Works (CMW), finding that there was no genuine issue of material fact that misstatements and omissions made by the inventor, Dr. John Mercer, during prosecution of the patents in suit were material. Digital Control, Inc. v. The Charles Mach. Works, No. C03-0103P (W.D.Wash. Mar. 22, 2004) (Summary Judgment). After a bench trial on the issue of intent, the district court determined that the misstatements and omissions were made with intent to deceive the United States Patent and Trademark Office (PTO) and that the level of materiality and the inference of intent were both high, warranting a finding that the patents were unenforceable for inequitable conduct. Bench Trial, slip op. at 26-27.

For the reasons stated below, we find that although there are no genuine issues of material fact as to the materiality of the misstatements in Dr. Mercer's Rule 131 declaration, there are genuine issues of material fact as to the materiality of Dr. Mercer's failure to disclose prior art. As the district court's determination of inequitable conduct was premised on the materiality of both the misstatements in the Rule 131 declaration and the failure to disclose prior art, we must vacate the district court's determination that the patents were unenforceable for inequitable conduct and remand for further proceedings.

I

The patents in suit involve Horizontal Directional Drilling (HDD), which enables creation of horizontal bores in the ground through which utility lines can be laid by allowing a worker to pinpoint the location and/or orientation of a boring tool as it moves through the ground. Generally, HDD devices involve an underground transmitter attached to a boring tool and above-ground receivers which are either stationary or, in a "walk-over system," are held by a worker walking over the tool. Conventional technology involves a display that shows the orientation or location of the tool, which is specified using values for pitch, yaw, and roll.

In 1991, Dr. Mercer filed the first in a series of 18 related patent applications regarding HDD locating technology.² In 1996, Dr. Mercer filed a continuation application that later issued as the '678 patent.³ The '678 patent claims "a method of monitoring the orientation of [a] boring tool" that is "disposed within the ground", said method involving a sensor arrangement, which detects the orientation of the boring tool, and a separate transmitter that can communicate via an electromagnetic signal to an above-ground locator or receiver. That receiver, in turn, creates a visual representation of the orientation of the boring tool. '678 patent, col. 25, ll. 32-61.

NOTE: OPINION CONTAINING TABLE OR OTHER DATA THAT IS NOT VIEWABLE

As illustrated in the specification at Figure 2, reproduced above, an operator (26) holding the receiver (36) uses it to locate the surface position directly above the tool head (28) and then to determine the depth and orientation (yaw, pitch, and roll) of the tool head.

Representative claim 1 of the patent reads as follows:

In a technique for locating a boring tool which is disposed within the ground, a method of monitoring the orientation of the boring tool, said method comprising the steps of:

(a) providing the boring tool with a sensor arrangement including an orientation sensor which senses at least one particular component of the orientation of the boring tool and separate transmitter means for transmitting a corresponding electromagnetic signal from the boring tool;

(b) providing an above-ground locator with a visual orientation display and with a receiver arrangement which receives said electromagnetic orientation signal and which converts it to a corresponding orientation display driving electric signal;

(c) with the boring tool in the ground at a specific orientation and the locator above ground, causing the sensor arrangement to transmit electromagnetic orientation signals corresponding to the particular orientation component of the boring tool's specific orientation;

(d) thereafter causing said receiver arrangement to produce in response to said last-mentioned electromagnetic signal a corresponding orientation display driving electric signal; and

(e) using said visual orientation display, visually displaying at the above-ground locator the particular orientation component of the boring tool's specific orientation in response to said last-mentioned orientation display driving electric signal.

'678 patent, col. 25, ll. 32-61.

Approximately half of the claims of the '678 patent were initially rejected by the PTO on the ground that they were obvious in light of U.S. Patent No. 5,174,033 (the Rider patent). In order to overcome that rejection, Dr. Mercer submitted a declaration under PTO Rule 131 (the Rule 131 declaration), whereby he submitted a sworn affidavit establishing that he had reduced his invention to practice prior to the effective date of the prior art reference, in this case, June 18, 1990. 37 C.F.R. § 1.131 (2004). Dr. Mercer's colleague, John Olsen, also submitted a brief declaration to the PTO stating that he had read Dr. Mercer's declaration and that he could "confirm that John Mercer showed me and operated for me in confidence the complete system referred to in that paragraph [9] at the meeting recited therein." Decl. of J. Olsen dated Oct. 2, 1997 at 1. Finding that Dr. Mercer's Rule 131 declaration was sufficient to overcome the Rider reference, the examiner withdrew the rejection.

In addition, during prosecution of the '678 patent, Dr. Mercer disclosed U.S. Patent No. 4,674,579 (the Geller patent) and U.S. Patent No. 4,806,869 (the Chau patent), both of which list Dr. Mercer as a co-inventor, as well as U.S. Patent No. 4,646,277 (the Bridges patent). '678 patent, col. 4, ll. 5-17, 38-43, col. 5, ll. 16-27. However, Dr. Mercer did not disclose U.S. Patent No. 4,710,708 (the Rorden patent), although he had submitted that patent as prior art in regard to a separate, unrelated patent application, U.S. Patent No. 6,035,951, filed on April 16, 1997.

II

A patent may be rendered unenforceable for inequitable conduct if an applicant, with intent to mislead or deceive the examiner, fails to disclose material information or submits materially false information to the PTO during prosecution. Norian Corp. v. Stryker Corp., 363 F.3d 1321, 1330-31 (Fed.Cir.2004). The party asserting inequitable conduct must prove a threshold level of materiality and intent by clear and convincing evidence. Molins PLC v. Textron, Inc., 48 F.3d 1172, 1178 (Fed.Cir.1995); J.P. Stevens & Co. v. Lex Tex, Ltd., 747 F.2d 1553, 1559 (Fed.Cir. 1984). The court must then determine whether the questioned conduct amounts to inequitable conduct by balancing the levels of materiality and intent, "with a greater showing of one factor allowing a lesser showing of the other." Union Pac. Res. Co. v. Chesapeake Energy Corp., 236 F.3d 684, 693 (Fed.Cir.2001).

When, after a trial, the court has made factual findings as to materiality and deceptive intent, those factual findings are reviewed for clear error, and the decision of the ultimate issue of inequitable conduct is reviewed for abuse of discretion. Novo Nordisk Pharms., Inc. v. Bio-Tech. Gen. Corp., 424 F.3d 1347, 1359 (Fed.Cir.2005).

However, when a district court grants summary judgment, we review de novo both whether there are disputed material facts and whether the prevailing party is entitled to judgment as a matter of law. SunTiger, Inc. v. Scientific Research Funding Group, 189 F.3d 1327, 1333 (Fed. Cir.1999) (citing Conroy v. Reebok Int'l, Ltd., 14 F.3d 1570, 1575 (Fed.Cir.1994)). In order to prevail at the summary judgment stage, the moving party must show that there are no genuine issues of material fact and that no reasonable jury could find against the moving party. Further, at the summary judgment stage, "[t]he evidence of the nonmovant is to be believed, and all justifiable inferences are to be drawn in his favor." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

Determining at summary judgment that a patent is unenforceable for inequitable conduct is permissible, but uncommon. A genuine issue of material fact is not raised by the submission of "merely conclusory statements...