Hydranautics v. Filmtec

• Decision Date: 23 February 2000
• Docket Number: No. 98-55274,98-55274
• Citation: 204 F.3d 880
• Parties: (9th Cir. 2000) HYDRANAUTICS, Plaintiff-Appellant, v. FILMTEC CORPORATION, OPINION Defendant-Appellee
• Court: U.S. Court of Appeals — Ninth Circuit

Page 880

204 F.3d 880 (9th Cir. 2000)

HYDRANAUTICS, Plaintiff-Appellant, v. FILMTEC CORPORATION, OPINION Defendant-Appellee.

No. 98-55274

UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

Argued and Submitted September 16, 1999

Filed February 23, 2000

[Copyrighted Material Omitted] COUNSEL: Stephen A. Kroft (Argued), Robert E. kohn, McDermott, Will & Emery, Los Angeles, Californis, Carl W. Schwarz, Seth D. Greenstein, Robert E. Kohn, McDermott, Will & Emery, Washington, D.C., and Jeffrey D. Lewin, Candace M. Carroll, Sullivan, Hill, Lewin, Rez, Engel & Labazzo, San Diego, California, for the plaintiff-appellant.

James R. Martin, Steven E. Sletten, Gibson, Dunn & Crutcher, Los Angeles, California, and Mark A. Perry, Gibson, Dunn & Crutcher, Washington, D.C., for the defendantappellee.

Appeal from the United States District Court for the Southern District of California; Napoleon A. Jones, Jr., District Judge, Presiding. D.C. No. CV-94-00631-NAJ

Before: Stephen Reinhardt and Michael Daly Hawkins, Circuit Judges, and Ronald M. Whyte,^* District Judge.

WHYTE, District Judge:

Appellant Hydranautics appeals the judgment dismissing its malicious prosecution action against FilmTec Corporation ("FilmTec") entered by the district court after it granted summary judgment in favor of FilmTec on collateral estoppel grounds. We reverse and remand for further proceedings.

I. BACKGROUND

A. Factual Background

John E. Cadotte and three others founded FilmTec Corporation in 1977. Prior to founding FilmTec, Cadotte conducted research at Midwest Research Institute ("MRI"), a not-forprofit organization performing research on reverse osmosis membranes under a government contract. Cadotte left MRI in December of 1977 or January of 1978. In February of 1979 he submitted a patent application for a new type of membrane that led to United States Patent No. 4,277,344 (the"'344 patent"). He assigned his rights in the patent application and any resulting patent to FilmTec. On July 7, 1981, the Patent Office issued the '344 patent. Hydranautics subsequently began manufacturing similar membranes. Out of this factual background, the extensive litigation described below arose.

B. Procedural Background

In 1990, FilmTec brought a patent infringement action against Hydranautics in the Southern District of California. As part of its defense, Hydranautics claimed that FilmTec's title to the '344 patent was fatally defective. The district court held, following a court trial, that FilmTec's patent was valid and that Hydranautics had willfully infringed the patent. The district court issued a permanent injunction for the term of the patent prohibiting Hydranautics from making or selling the patented membranes.

Hydranautics appealed to the Federal Circuit, which reversed. See FilmTec v. Hydranautics, 982 F.2d 1546 (Fed. Cir. 1993). The Federal Circuit concluded as a matter of law that the patented invention was conceived while Cadotte was employed on a government research contract at MRI and that the United States was entitled to ownership of the invention. The court also found that Hydranautics was a third-party beneficiary of the contract as a member of the general public and could practice the invention. The court made its decision on the facts found by the district court and stated"[w]e will not invade the province of the district court to judge matters of credibility [ ]." Id. at 1553.

After the Federal Circuit's decision, Hydranautics pursued three separate actions against FilmTec.

First, Hydranautics moved the district court for leave to amend its answer to assert an antitrust claim against FilmTec. The district court denied the motion as untimely. Hydranautics then appealed to the Federal Circuit. The Federal Circuit affirmed, but on a different ground, namely, that FilmTec was immune from antitrust liability under the Noerr-Pennington doctrine, and, therefore, any amendment would be futile. FilmTec Corp. v. Hydranautics, 67 F.3d 931, 937-39 (Fed. Cir. 1995), cert. denied, 117 S. Ct. 62 (1996). It pointed out that in order to penetrate Noerr-Pennington immunity, the plaintiff must prove that the litigation brought by defendants was a "sham," which includes a requirement that the claim was "objectively baseless." Id. at 937. The Federal Circuit then held that

The facts of this case have been established by prior litigations, and are therefore law of the case. Because there is no dispute over the facts, the ques tion whether or not a cause of action is reasonable or an abuse of process is a question of law.

* * * *

Although the question is not without some doubt, we conclude that, taking all of the facts and circum stances into account, it cannot be said that FilmTec's suit against Hydranautics was objectively baseless. The issues on which this litigation hinged, precisely what Cadotte invented, and when, were genuine.

Id. at 938-39 (citation omitted).

It appears that the Federal Circuit found that the infringement claim was not objectively baseless predicated on the facts as had been presented in the infringement action. There is no indication that the Federal Circuit considered whether the evidence presented was fraudulent or perjurious. It expressly did not reach the issue of whether FilmTec defrauded the patent office when it prosecuted its patent application and obtained the patent. See id. at 939, n.2.¹

Second, at the same time as it filed its motion to amend its answer, Hydranautics also filed a separate antitrust lawsuit against FilmTec. The district court dismissed the separate antitrust action on the ground that it should have been brought as a compulsory counterclaim in the patent case. Hydranautics appealed the dismissal to the Ninth Circuit. The Ninth Circuit reversed and remanded. See Hydranautics v. FilmTec., 70 F.3d 533 (9th Cir. 1995). The court concluded that the antitrust claim was not a compulsory counterclaim. See id. at 536-537. Moreover, the court, following dictum in Liberty Lake Investments, Inc v. Magnuson, 12 F.3d 155 (9th Cir. 1993), held that a defendant is not immune under Noerr-Pennington if the defendant brought the underlying infringement action based on a patent obtained by intentional fraud. See id. at 538. The court concluded that the question of whether NoerrPennington immunity applied to FilmTec could not be determined on the pleadings but that "Hydranautics asserts facts in its complaint that, if true, would prove that FilmTec obtained its patent by fraud." Id. at 538. In a footnote to its opinion, the court noted the Federal Circuit's then-recent opinion in the parallel infringement action which held that FilmTec's infringement suit was not objectively baseless.

The Federal Circuit held as a matter of law, Film Tec's case was not objectively baseless, but said "there is no dispute over the facts." In the procedural posture of the case before us, it would not be correct to say that there is no dispute as to the facts. Hydranautics alleges fraud, and FilmTec denies it. We must assume for the purposes of Rule 12(b)(6) that Hydranautics could prove that FilmTec obtained the patent fraudulently. Nor do we decide whether the issue of objective baselessness is res judicata, on account of the Federal Circuit case. These questions should, if raised on remand, be decided in the first instance by the district court.

Hydranautics, 70 F.3d at 538 n.1.

The district court after remand in the antitrust action denied FilmTec's summary judgment motion, stating that the court

rejects FilmTec's contention that the Federal Circuit actually made a determination that FilmTec did not act fraudulently in securing the '344 patent. There is nothing in the language of the . . . opinion that con vinces this Court that the Federal Circuit has made any such determination of whether FilmTec acted fraudulently.

Hydranautics v. FilmTec, No. 93-476J(LSP) (S.D. Cal. August 5, 1997) (order denying defendant FilmTec's motion for summary judgment).

The antitrust action is currently ongoing in district court.

Third, Hydranautics filed a malicious prosecution action in state court which was removed to federal court based on diversity jurisdiction. It is from this case that the current appeal arises. The district court initially granted FilmTec's motion to dismiss for failure to state a claim for relief. Hydranautics' amended complaint includes allegations that FilmTec's patent application was fraudulent; that FilmTec knew that it did not own the patent and, therefore, its infringement allegations were groundless; and that Cadotte, on behalf of FilmTec, falsely testified concerning when he conceived of the invention.

FilmTec moved to dismiss the amended complaint for failure to state a claim and the district court granted the motion without leave to amend, finding that Hydranautics' allegations of perjury in the infringement trial were not sufficient to allege "fraud on the court" and thus overcome the probable cause presumption raised by FilmTec's favorable decision at trial. Hydranautics appealed the dismissal to the Ninth Circuit, which reversed and remanded in an unpublished opinion. Hydranautics v. FilmTec Corp., 1996 WL 616655 (9th Cir. October 23, 1996). The court held that although probable cause is conclusively established where the defendant obtains a favorable result at the trial court in its underlying action even though that trial court decision is later reversed on appeal, there is an exception when the favorable judgment was obtained by false or perjured testimony.

The presumption of probable cause does not apply when the defendant procured its favorable judgment in the underlying action by the "knowing use of false and perjured testimony." Carpenter v. Sibley , 153 Cal. 215, 218 (1908). Therefore, if the plaintiff prop erly pleads that the trial court judgement was "procured by fraud, perjury or subornation of per jury, or other unfair conduct on the part of the defen dant, the presumption of...