Eltra Corp. v. Basic, Inc.

• Decision Date: 18 June 1979
• Docket Number: No. 77-3364,77-3364
• Citation: 599 F.2d 745,202 USPQ 630
• Parties: ELTRA CORPORATION, Plaintiff-Appellant, v. BASIC INCORPORATED, Defendant-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 745

599 F.2d 745

202 U.S.P.Q. 630

ELTRA CORPORATION, Plaintiff-Appellant, v. BASIC INCORPORATED, Defendant-Appellee.

No. 77-3364.

United States Court of Appeals Sixth Circuit.

Argued Feb. 13, 1979.

Decided May 21, 1979.

As Corrected June 18, 1979.

John C. Purdue, Owen, Purdue, Emch & Barker Co., L.P.A., Toledo, Ohio, Dugald S. McDougall, McDougall, Hersh & Scott, Chicago, Ill., Dana M. Raymond, Brumbaugh, Graves, Donohue & Raymond, New York City, Robert H. Johnson, Eltra Corp., Toledo, Ohio, for plaintiff-appellant.

George B. Newitt, Allegretti, Newitt, Witcoff & McAndrews, Chicago, Ill., Armand P. Boisselle, Donnelly, Maky, Renner & Otto, Cleveland, Ohio, for defendant-appellee.

Before WEICK, ENGEL and MERRITT, Circuit Judges.

WEICK, Circuit Judge.

The suit in the District Court was brought by Eltra Corporation (Eltra) against Basic Incorporated (Basic) seeking a declaratory judgment that Basic's Reissue Patent No. Re. 27,111, entitled "Pitch-Bonded Refractory Composition" was invalid and noninfringed. Basic responded by counterclaiming against Eltra for infringement of its patent by North American Refractories Company (Narco), a division of Eltra. The subject matter of the patent in suit is a process for making pitch-bonded refractory bricks used to line furnaces in which steel is made by the basic oxygen process.

Following a bench trial the District Court held that the patent in suit was valid and infringed. The Court further held that Basic was entitled to treble damages under 35 U.S.C. § 284 because the infringement was "deliberate and intentional." The Court also held that Basic was entitled to attorney's fees under 35 U.S.C. § 285 because Eltra's claim of fraud on the patent office was a "smoke screen." A later hearing on the amount of damages and fees to be awarded was to be held if the parties could not agree on the amounts.

We disagree and reverse. In our opinion the patent in suit is invalid for obviousness under 35 U.S.C. § 103. Accordingly, Basic is not entitled to either damages or attorney's fees, and it is not necessary for us to reach either the claim of fraud on the patent office or the issue of infringement. Additionally, even if the patent were valid, we can perceive no basis in the record of this case for awarding Basic either treble damages or attorney's fees.

I

The parties in this case are competitors in the manufacture and sale of pitch-bonded refractory bricks. These bricks are used in the steel industry to line the inside of basic oxygen furnaces. The basic oxygen process for steelmaking became generally used and accepted in this country during the 1950's. While refractory materials had always been used in steelmaking, producers found in the 1950's and 1960's that they needed an improved brick, one which would last longer under the adverse conditions present in the basic oxygen furnace.

The essential process for making pitch-bonded refractory bricks is well known. A refractory material such as magnesia or dolomite is combined with a hydrocarbon binder (pitch). The mixture is compressed, formed into a brick, and baked. Basic's claimed invention involves the addition of small amounts of carbon of specified varieties to the mixture. ¹ According to the patent's specifications, bricks made by this process will exhibit improved qualities as to oxidation, crushing strength and density.

The invention of this formula was allegedly made in 1960 by a then employee of Basic, Roger E. Wilson. U. S. Letters Patent No. 3,236,664 were originally issued to him on his application filed in 1962. Thereafter, officers at Basic realized that the original patent might not be valid in light of an earlier, similar Canadian patent No. 614,742 issued to one Lisle Hodnett. ² This patent had not been before the patent examiner. An application for a reissue patent ³ was filed in 1969. This application narrowed the original claims, deleted some, and apparently attempted to distinguish them from Hodnett, although the Hodnett patent was again not cited to the patent office. In spite of this omission, the examiner located the prior art patent on his own and cited it in rejecting the reissue application. After amendment, the reissue patent was eventually granted in 1970 with the specific claims stated in the margin. ⁴

The process described in the original and reissue patents has enjoyed some commercial success. In 1968 the Narco division of Eltra began producing bricks under a licensing agreement with Basic. The largest company in the business, Harbison-Walker, also acquired a license to use the process, as did a smaller firm. More recently, several other refractory producers have followed suit.

In 1973, Narco became aware that Harbison-Walker had filed suit challenging the validity of the Wilson patent. Narco then consulted outside counsel and obtained an opinion that the Wilson patent was invalid. Narco thereafter ceased paying royalties to Basic, explaining that the patent was viewed as invalid. Basic and Narco attempted to renegotiate a mutually satisfactory licensing agreement. But when no agreement could be reached, the present suit was filed.

In the interim, Basic and Harbison-Walker settled their lawsuit. Their agreement provided Harbison-Walker with a royalty-free license under Basic's Wilson patent. In exchange for this Basic received a royalty-free license under a Harbison-Walker patent that was later held invalid in Dresser Indus., Inc. v. Eltra Corp., 432 F.Supp. 153 (N.D.Ohio 1977) (Dresser Indus. is the successor to Harbison-Walker).

II

Eltra's principal contention is that the Wilson patent, as reissued, is invalid for obviousness under 35 U.S.C. § 103. The section provides:

§ 103. Conditions for patentability; non-obvious subject matter

A patent may not be obtained though the invention is not identically disclosed or described as set forth in section 102 of this title, if the differences between the subject matter sought to be patented and the prior art are such that the subject matter as a whole would have been obvious at the time the invention was made to a person having ordinary skill in the art to which said subject matter pertains. Patentability shall not be negatived by the manner in which the invention was made.

In analyzing the validity of any patent we must begin with the statutory presumption of validity that accompanies its issuance, 35 U.S.C. § 282. American Seating Co. v. National Seating Co., 586 F.2d 611, 615 (6th Cir. 1978). The presumption has no independent evidentiary significance, however, as it merely serves to allocate to the party claiming invalidity the burden of proving it. ⁵ Reynolds Metals Co. v. Acorn Bldg. Components, Inc., 548 F.2d 155, 160 (6th Cir. 1977); Dickstein v. Seventy Corp., 522 F.2d 1294, 1296 (6th Cir. 1975), Cert. denied, 423 U.S. 1055, 96 S.Ct. 787, 46 L.Ed.2d 644 (1976); Sperberg v. Goodyear Tire & Rubber Co., 519 F.2d 708, 713 (6th Cir.), Cert. denied, 423 U.S. 987, 96 S.Ct. 395, 46 L.Ed.2d 303 (1975); Rains v. Niaqua, Inc., 406 F.2d 275, 278 (2d Cir.), Cert. denied,395 U.S. 909, 89 S.Ct. 1751, 23 L.Ed.2d 222 (1969). In the typical case such as this, where the bulk of the evidence of the prior art is contained in documents, the party claiming obviousness need only do so by a preponderance of the evidence. Dickstein, supra, 522 F.2d at 1295-97; Cf. Campbell v. Spectrum Automation Co., 513 F.2d 932 (5th Cir. 1975). The District Court was thus in error in stating that:

The basic rule is that a patent is presumed to be valid, and those who attack its validity, in order to succeed, must establish their case by clear and convincing evidence. (App. 471.)

While this higher standard of proof may apply to the unusual case, such as where the evidence may be of an inherently unreliable nature, See Dickstein, supra, 522 F.2d at 1296; Campbell, supra, or where fraud is alleged, See Schnadig Corp. v. Gains Mfg. Co., Inc., 494 F.2d 383, 392 (6th Cir. 1974), it is simply not the "basic rule" to be applied in cases involving alleged obviousness under 35 U.S.C. § 103.

In the seminal case of Graham v. John Deere Co., 383 U.S. 1, 86 S.Ct. 684, 15 L.Ed.2d 545 (1966), the Supreme Court outlined the proper inquiry under section 103 as follows:

(T)he scope and content of the prior art are to be determined; differences between the prior art and the claims at issue are to be ascertained; and the level of ordinary skill in the pertinent art resolved. Against this background, the obviousness or nonobviousness of the subject matter is determined. (Id. at 17, 86 S.Ct. at 694.)

The Court continued:

Such secondary considerations as commercial success, long felt but unsolved needs, failure of others, etc., might be utilized to give light to the circumstances surrounding the origin of the subject matter sought to be patented. As indicia of obviousness or nonobviousness, these inquiries may have relevancy. (Id. at 17-18, 86 S.Ct. at 694.)

Essentially, nonobviousness is the statutory equivalent of the requirement of "invention," derived from the Supreme Court's decision in Hotchkiss v. Greenwood, 52 U.S. (11 How.) 248, 13 L.Ed. 683 (1851). Sakraida v. Ag Pro, Inc., 425 U.S. 273, 279, 96 S.Ct. 1532, 47 L.Ed.2d 784 (1976); Dann v. Johnston, 425 U.S. 219, 225-26, 96 S.Ct. 1393, 47 L.Ed.2d 692 (1976); Reynolds Metals, supra, 548 F.2d at 159; Monroe Auto Equip. Co. v. Heckethorn Mfg. & Supply Co., 332 F.2d 406, 410 (6th Cir.), Cert. denied, 379 U.S. 888, 85 S.Ct. 160, 13 L.Ed.2d 93 (1964). This requirement explicates the constitutional mandate that inventions must "promote the useful arts," Art. I, § 8, cl. 8, before a limited monopoly may be granted. Anderson's Black-Rock v. Pavement Co., 396 U.S. 57, 61, 90 S.Ct. 305, 24 L.Ed.2d 258 (1969); See Graham, supra. Thus not every improvement in the art is patentable. To be nonobvious, some prior decisions held that the advancement must be the product of "inventive genius." A. & P. Tea Co. v. Supermarket Corp., 340 U.S....