Gilbreth Intern. Corp. v. Lionel Leisure, Inc.

• Decision Date: 25 August 1983
• Docket Number: 76-3555 and 76-3438.,Civ. A. No. 76-3494
• Citation: 587 F. Supp. 605
• Parties: GILBRETH INTERNATIONAL CORPORATION v. LIONEL LEISURE, INC., F.W. Woolworth Company, Gaudio Brothers, Inc. and S.S. Kresge Company.
• Court: U.S. District Court — Eastern District of Pennsylvania

587 F. Supp. 605

GILBRETH INTERNATIONAL CORPORATION v. LIONEL LEISURE, INC., F.W. Woolworth Company, Gaudio Brothers, Inc. and S.S. Kresge Company.

Civ. A. Nos. 76-3494, 76-3555 and 76-3438.

United States District Court, E.D. Pennsylvania.

August 25, 1983.

Stanley H. Cohen, Philadelphia, Pa., for plaintiff.

Michael A. Cornman, New York City, Wallace D. Newcomb, Philadelphia, Pa., for defendants.

MEMORANDUM

RAYMOND J. BRODERICK, District Judge.

In this patent infringement litigation, Gilbreth International Corporation ("Gilbreth") the plaintiff, having been unsuccessful in reissue litigation before the United States Court of Customs and Patent Appeals, has filed a motion pursuant to Fed.R.Civ.P. 41(a) seeking a voluntarily dismissal with prejudice of its complaint against the defendants. The defendants have urged that the Court exercise its authority under Rule 41(a) to dismiss a claim at plaintiff's request only "upon such terms and conditions as the court deems proper" and enter an Order dismissing plaintiff's complaint with prejudice but awarding attorney's fees and costs to the defendants under the "exceptional case" provision of 35 U.S.C. § 285. A hearing was held on these motions. For the reasons hereinafter set forth, the Court will enter an order permitting plaintiff's complaint to be voluntarily dismissed with prejudice upon the condition that plaintiff pay to defendants all reasonable attorney's fees and costs incurred in connection with this litigation. On or before September 30, 1983, defendants shall submit an application for attorney's fees in accordance with the standards hereinafter set forth.

Gilbreth filed these three actions in 1976 claiming that the defendants infringed a patent issued to the plaintiff in 1974. The patent in question was a band of heat-shrinkable plastic containing a decorative pattern which could be quickly placed upon objects such as Christmas tree ornaments, Easter eggs and glassware in order to decorate the objects or, in the case of glassware, to seal the objects. These three cases were consolidated and originally assigned to the late Judge Gorbey but were subsequently transferred to this Court. Gilbreth later filed a motion to stay these actions because it had initiated reissue application proceedings with the United States Patent and Trademark Office ("Patent Office"). The Court granted this motion in its Memorandum of December 10, 1980 and stayed the proceedings. An extension of the stay was later granted so that Gilbreth could appeal the Patent Office's reissue determination which had in effect invalidated the Gilbreth patent. The Patent Office's invalidation of the Gilbreth patent was affirmed by the Board of Patent Appeals and was also affirmed by the Court of Customs and Patent Appeals.

The reissue procedure was adopted by the Patent Office in 1977 see 37 C.F.R. § 171, et seq. (1980). It permits a patent owner to seek a relatively inexpensive post-issuance ruling from the Patent Office regarding the pertinence of patentability evidence not previously considered by the Patent Office during the examination of the original patent. As part of the reissue proceeding the Patent Office invites comment from interested members of the public, to which the defendants responded, giving reissue proceedings in general and the reissue proceedings in this case in particular many characteristics of an adversary proceeding.

Prior to the stay of the proceedings in this matter, the defendants had filed a motion for summary judgment contending that the patent held by Gilbreth was invalid because (1) it was known or used by others in this country or described in a printed publication prior to the alleged invention thereof (35 U.S.C. § 102(a)); (2) it was described in a printed publication or on sale in this country more than one year prior to the plaintiff's application to the Patent Office for said patent (35 U.S.C. § 102(b)); and (3) the inventors did not invent the subject matter sought to be patented, id. § 102(f). The defendants further contended that the plaintiff's conduct constituted a breach of its duty of candor to the Patent Office, and requested costs and attorney's fees from the plaintiff. In support of their motion for summary judgment, the defendants attached exhibits from the plaintiff's files and called the Court's attention to pages of deposition testimony of the plaintiff and its customers.

The issues raised by the defendants in their summary judgment motion are virtually identical to those considered by the Patent Office. This similarity was a factor in the Court's decision to stay the proceedings pending resolution of the reissue proceedings. See Memorandum of December 10, 1980 at 5. As the Court noted in its Memorandum, "the plaintiff has represented to the Court that if it fails in obtaining a reissue patent it will move to dismiss these actions with prejudice." Id. at 5. The Patent Office subsequently found the Gilbreth Patent (U.S. Patent No. 3,829,348) invalid. This decision was affirmed by the Board of Patent Appeals (a review board within the Patent Office) and by the United States Court of Customs and Patent Appeals ("CCPA"), an Article III Court to which an unsuccessful reissue applicant can appeal an adverse decision of the Patent Office and the Appeals Board. The 1982 Federal Courts Improvement Act subsequently consolidated the CCPA and the United States Court of Claims into the U.S. Court of Appeals for the Federal Circuit, (see 28 U.S.C. § 1295(a)(1)), a new federal Court of Appeals which hears appeals from district court decisions involving federal question jurisdiction over patent questions under 28 U.S.C. § 1338.

After the CCPA affirmed the Patent Office denial of reissue, Gilbreth's counsel, as previously represented, moved to dedicate the patent to the public and sought an Order of this Court permitting plaintiff to voluntarily dismiss this litigation with prejudice. The defendants urged that this Court grant a voluntary dismissal with prejudice only upon the condition that plaintiff compensate defendants for their reasonable attorney's fees and costs in connection with this litigation. As authority for this condition, the defendants cited the "exceptional case" provision (35 U.S.C. § 285) of the U.S. Patent Code. This Section provides that the court "in exceptional cases may award reasonable attorney fees to the prevailing party." Most cases awarding fees under this section have involved fraud on the Patent Office or the Court, but authority exists for awarding fees where there has been grossly negligent or reckless conduct or bad faith conduct in connection with either the obtaining of a patent or the federal court litigation or both. See pp. 615-617, infra. To determine whether there has been any such conduct justifying the award of fees to the defendants who are clearly the prevailing party in the reissue litigation and would probably prevail on the merits in the instant litigation under the principles of res judicata and collateral estoppel, this Court held an evidentiary hearing. Based on the evidence presented at the hearing and the record in this matter, the Court finds by clear and convincing evidence that Gilbreth's conduct in the procurement of the patent was fraud upon the Patent Office and was so reckless and tainted by bad faith that the defendants are entitled to a reasonable attorney's fee in connection with their defense of Gilbreth's suit against them. This Court has further determined that Gilbreth failed to disclose material facts to the Patent Office when it sought and obtained the patent. This conduct, though it does not amount to common law fraud, is a fraud on the Patent Office within the meaning of the cases interpreting 35 U.S.C. § 285.

The Background of U.S. Patent No. 3,829,348

On April 7, 1972, Gilbreth applied for a patent on the heat shrinkable bands at issue in this case. On August 13, 1974, the U.S. Patent Office issued the patent. The heat shrinkable bands are designed to be offered in various sizes and shapes and to be placed around various objects such as Christmas ornaments, Easter eggs, and glassware. The band is placed in the desired position around the object and heat is then applied to the band. After a few seconds of applied heat, the band shrinks around the object in a tight fit achieving, in the language of Gilbreth's patent application, "intimate contact with the surface area" of the object. When heat ceases to be applied, the shrinkage stops. The bands are capable of shrinking as much as 2 to 10 percent in height and 30 to 50 percent in diameter. Therefore, the band applied to the object must be somewhat proportional in size to the object over which the band is being shrunk. The degree of heat required is not great. The heat from an ordinary hair blow dryer will usually suffice to trigger the shrinking of the band.

In its patent application, Gilbreth focused on the band's potential usefulness in decorating Christmas tree ornaments. However the patent application was broadly worded and indicated that the patent applicants (Jacob Spiegel, an owner and officer of Gilbreth, and Albert Miller, a Gilbreth researcher) believed the band to be capable of use with a variety of different objects. In the patent application's "abstract" or description of the "invention" they described the invention as follows:

A method of decorating objects rapidly is provided. A band of heat-shrinkable plastic is provided with a decorative pattern and is placed on the object. Heat is applied to the band causing it to shrink and conform to the shape of the object being decorated.

(Defendant's Ex. 3). Furthermore, the patent application specifically discussed the possibility of applying the heat shrinkable bands to glass and plastic containers. See Def. Ex. 3 at 9-10.

On Page 15 of the patent application, applicants Spiegel and Miller, acting on behalf of Gilbreth, each signed the standard "Declaration, Power...