Morgan Adhesives Co. v. Chemtrol Adhesives, Inc.

• Decision Date: 21 October 1983
• Docket Number: No. C76-101.,C76-101.
• Parties: MORGAN ADHESIVES COMPANY, Plaintiff, v. CHEMTROL ADHESIVES, INC., etc., Defendant.
• Court: U.S. District Court — Northern District of Ohio

574 F. Supp. 832

MORGAN ADHESIVES COMPANY, Plaintiff, v. CHEMTROL ADHESIVES, INC., etc., Defendant.

No. C76-101.

United States District Court, N.D. Ohio, E.D.

October 21, 1983.

Edwin W. Oldham and Ray L. Weber, of Oldham & Oldham, Akron, Ohio, and Thomas V. Koykka of Arter & Hadden, Cleveland, Ohio, for plaintiff.

Christopher B. Fagan of Fay & Sharpe, Cleveland, Ohio, and Richard J. Cusick and Mark Wallach of Calfee, Halter & Griswold, Cleveland, Ohio, for defendant.

MEMORANDUM OF OPINION

MANOS, District Judge.

On February 2, 1976 plaintiff, Morgan Adhesives Company, (hereinafter, Morgan), filed the above-captioned case seeking injunctive relief, damages and attorney's fees due to the alleged infringement of its United States Letters Patent No. 3,900,645 (hereinafter, '645), by the defendant, Chemtrol Adhesives, Inc., (hereinafter, Chemtrol). On March 23, 1976 Chemtrol filed an answer and counterclaim seeking declaratory relief regarding the validity of the '645 patent, attorney's fees and treble damages for an alleged violation of Section 2 of the Sherman Antitrust Act of 1890. On May 20, 1983 the court granted Chemtrol's motion for summary judgment on Morgan's claim of patent infringement. On June 27, 1983 the court granted Morgan's motion to amend that judgment "to include a finding that there is no just reason for delay and that the judgment of the court is final." Throughout, the court has reserved ruling on Chemtrol's counterclaim for attorney's fees. In August, 1983, the court held a two-day hearing on the counterclaim.

Upon consideration of the testimony of the witnesses at the hearing, the exhibits received, and the briefs of both parties, the court finds that Chemtrol is not entitled to attorney's fees under 35 U.S.C. § 285. Therefore, the court enters judgment for Morgan on Chemtrol's counterclaim. The following findings of fact and conclusions of law are filed in accordance with Fed.R. Civ.P. 52(a).

In patent cases, 35 U.S.C. § 285 permits an award of attorney's fees to the prevailing party when the circumstances are "exceptional."¹ Such an award "is intended to compensate the prevailing party for costs that it would not have incurred but for the conduct of the losing party and is within the sound discretion of the district court." Campbell v. Spectrum Automation Co., 601 F.2d 246, 251 (6th Cir.1979). Accord: White Consolidated Industries, Inc. v. Vega Servo-Control, Inc., 713 F.2d 788, 792 (Fed.Cir.1983); Stevenson v. Sears Roebuck & Co., 713 F.2d 705 (Fed.Cir. 1983); Orthopedic Equipment Co. v. All Orthopedic Appliances, Inc., 707 F.2d 1376, 1384 (Fed.Cir.1983); Faulkner v. Baldwin Piano & Organ Co., 561 F.2d 677, 685 (7th Cir.1977) (cited with approval in White Consolidated Industries Inc. v. Vega Servo-Control, Inc., supra, 713 F.2d at 792). "However, an award is proper only where the district court had made specific findings that bring the case within the `exceptional' definition." Campbell v. Spectrum Automation Co., supra, 601 F.2d at 251. Accord Stevenson v. Sears Roebuck & Co., supra, 713 F.2d at 712. "A case is exceptional if there arises `such misconduct on the part of the losing party as to constitute fraud on the patent office or conduct so unfair and reckless as to make it unconscionable for the prevailing party to sustain the expense of counsel.'" Plastic Container Corp. v. Continental Plastics of Oklahoma, Inc., 708 F.2d 1554, 1560 (10th Cir.1983) (citation omitted). Accord Stevenson v. Sears Roebuck & Co., supra, 713 F.2d at 713 (there must be some finding "of unfairness, bad faith, inequitable conduct, vexatious litigation, or some similar exceptional circumstance"); Orthopedic Equipment Co. v. All Orthopedic Appliances, Inc., supra, 707 F.2d at 1384 ("fraudulent" or "inequitable" conduct); Campbell v. Spectrum Automotion Co., 601 F.2d at 251 ("unfair, inequitable, unconscionable, or similar conduct"); Faulkner v. Baldwin Piano & Organ Co., supra, 561 F.2d at 685 ("to prevent gross injustice where fraud and wrongdoing are clearly proved").

Chemtrol contends that this case is exceptional for two reasons: (1) Morgan's failure to inform the Patent and Trademark Office of the Karn patent (3,230,649) during the prosecution of Morgan Patent 3,900,645, and (2) Morgan's filing of this infringement suit against Chemtrol, despite full knowledge of the Karn patent. Chemtrol argues that either of these acts constitutes inequitable conduct sufficient to justify an award of attorney's fees under 35 U.S.C. § 285. The court will address these alternative grounds separately.²

Chemtrol first argues that Morgan's failure to inform the Patent and Trademark Office of the Karn patent during the prosecution of Morgan's '645 patent constitutes fraud or inequitable conduct, sufficient to justify an award of attorney's fees. In support of this argument, Chemtrol cites Regulation 1.56, which imposes a duty of candor and good faith on the inventor and his agents in dealing with the Patent and Trademark Office. This regulation also imposes on these individuals a duty to disclose all "material" information:

All such individuals have a duty to disclose to the Office information they are aware of which is material to the examination of the application. Such information is material where there is a substantial likelihood that a reasonable examiner would consider it important in deciding whether to allow the application to issue as a patent.

37 C.F.R. § 1.56. Chemtrol argues further that the Karn patent is definitely "material" since the Court of Customs and Patent Appeals (CCPA) held that the claims of Morgan's '645 patent were unpatentable over prior art, and the Karn patent in particular.³ Finally, Chemtrol argues that Morgan must have been aware of the Karn patent prior to filing its '645 patent application⁴ because Andrew Karn sent a letter to him dated August 4, 1967,⁵ which included a copy of the Karn patent and some samples, and Burton Morgan sent a letter to Andrew Karn dated August 9, 1967,⁶ acknowledging receipt of the letter from him.

In response to these arguments, Morgan asserts that it never believed the Karn patent to be workable or in any way relevant to the Morgan '645 patent, and that its failure to inform the Patent and Trademark Office of the Karn patent was simply the result of its own conclusion, albeit erroneous, that the Karn patent was irrelevant. Morgan argues, therefore, that its failure to inform the Patent and Trademark Office of the Karn patent constitutes nothing more than simple negligence, and that negligence alone cannot justify an award of attorney's fees under 35 U.S.C. § 285.

Both the Morgan '645 patent and the Karn patent relate to pressure sensitive adhesive labels having a removable backing sheet. The Morgan '645 patent involves the mechanical compaction of the backing sheet along potential tear lines. The compaction causes the paper in the area of the potential tear lines to become embrittled so that it cracks when the backing paper is bent, thus facilitating the gripping and removal of the backing sheet from the pressure sensitive adhesive label. The Karn patent, on the other hand, involves cutting channels in the backing paper with a very sharp cutting knife. The knife cuts channels that go partway through the backing paper. Thus, it cuts most of the fibers along the tear line, but leaves a thin membrane of unbroken fibers. Dr. Robert C. McKee, an expert in the field of paper and paperboard, testified as to the difference between these two patents:

A. The product, the Morgan product or the product made according to the Morgan patent, as I mentioned, is compacted in the area of the score. It is embrittled and, therefore, when you back-fold it, it will rupture....

In contrast, the Karn process or patent, if you make those, you make the channels by die cutting with a very sharp knife, because you have to have a very sharp knife to cut. And what happens is that that very fine, thin member is more flexible. When you back-fold it, it will not crack, in fact, very frequently, if not always, you will have a line of delamination right at that junction and thus you don't get the lining perfectly being able to be peeled off from the pressure-sensitive adhesive (indicating).

Transcript at 216.

As stated earlier, in order for a patent case to be "exceptional," there must be some finding of "unfairness, bad faith, inequitable conduct, vexatious litigation, or some similar exceptional circumstance." Stevenson v. Sears Roebuck & Co., 713 F.2d 705, 713 (Fed.Cir.1983). Mere evidence of simple negligence, oversight, or an erroneous judgment made in good faith not to disclose prior art does not constitute fraud or inequitable conduct sufficient to justify an award of attorney's fees. Orthopedic Equipment Co. v. All Orthopedic Appliances, Inc., 707 F.2d 1376, 1383-84 (Fed.Cir.1983). Accord Brown-Bridge Mills, Inc. v. Eastern Fine Paper, Inc., 700 F.2d 759, 767 (1st Cir. 1983); American Can Co. v. Crown Cork & Seal Co., 693 F.2d 653, 657 (7th Cir.1982) ("Innocent or negligent omissions or mis-statements before the Patent Office do not justify the award, but willfulness or bad faith if established by clear and convincing evidence are adequate even if not equalling fraud."); Mayview Corp. v. Rodstein, 620 F.2d 1347, 1357-59 (9th Cir.1980) (failure to disclose prior art that patentee "knew or should have known" was material does not, by itself, constitute an exceptional case). "It is within the province of the trial court to ascertain the state of mind of the one whose conduct is challenged and to determine whether the evidence establishes an intentional misrepresentation or, at least, gross negligence as to the truth." Orthopedic Equipment Co. v. All Orthopedic Appliances, Inc., supra, 707 F.2d at 1384.

In the present case, the court is not persuaded that Burton Morgan deliberately withheld disclosure of the Karn patent. Nor is the court persuaded that the failure to make...