National Business Systems, Inc. v. AM Intern., Inc., 82-2393

• Decision Date: 24 January 1985
• Docket Number: No. 82-2393,82-2393
• Parties: NATIONAL BUSINESS SYSTEMS, INC., et al., Plaintiffs-Appellants, v. AM INTERNATIONAL, INC., et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1227

743 F.2d 1227

223 U.S.P.Q. 1011

NATIONAL BUSINESS SYSTEMS, INC., et al., Plaintiffs-Appellants, v. AM INTERNATIONAL, INC., et al., Defendants-Appellees.

No. 82-2393.

United States Court of Appeals, Seventh Circuit.

Argued April 4, 1984.

Decided Sept. 20, 1984.

Rehearing and Rehearing En Banc Denied Jan. 24, 1985.

Edward S. Irons, Washington, D.C., for plaintiffs-appellants.

Raymond P. Niro, Memel, Jacobs, Pierno & Gersh, Washington, D.C., for defendants-appellees.

Before PELL and ESCHBACH, Circuit Judges, and JAMESON, Senior District Judge. ^*

JAMESON, Senior District Judge.

National Business Systems, Inc. (NBS) appeals from those portions of the judgment of the district court (1) holding claim 7 of AM International Inc.'s (A.M.) patent No. 3,272,120 valid and infringed; (2) denying NBS costs and attorneys' fees; and (3) granting an injunction against further infringement of claim 7 by NBS. ¹ We affirm and remand for a determination of damages.

I. Factual Background

This appeal concerns a single patent, No. 3,272,120, ('120) entitled "Address Printing Machines with Roller Platens," issued to AM (as assignee of the inventor, D.W. Johnson) on September 13, 1966 from an application filed October 22, 1964. ² The patent was described by the district court as follows:

The '120 patent discloses and claims a data recorder using a two platen roller, two stroke (forward-return) method for imprinting forms from embossed printing plates or cards, such as are used in credit transactions in department stores and gas stations and in finance institutions with bank cards. The data recorder disclosed in the '120 patent has a dual platen roller arranged on a double eccentric shaft constituting a platen assembly which allows for selective imprinting of characters from the embossed plates or cards. A first platen roller is lowered and imprints on the form the first portion of characters as it rolls along the embossed plate or card, which is on the bed of the data recorder, in a left-to-right stroke of the platen carriage, which houses the platen assembly and is operated by hand. The first platen roller is then raised and a second platen roller is lowered to imprint the remaining portion of the characters as it rolls along the embossed plate or card in a right-to-left return stroke.

The AM machine was designed to meet a particular demand for an imprinter that could produce imprints on carbon form sets sufficiently clear to be read accurately by machine. The demand in part grew out of the American Bankers' Association's decision to adopt "magnetic ink character recognition symbols" (MICR symbols) for imprinting deposit slips, receipts, and other forms. As stated in the patent application "[a]lthough the use of MICR characters has greatly increased the speed and efficiency with which the imprinted forms can be sorted, a considerable amount of difficulty has been encountered in the imprinting of the MICR characters on the forms." After listing recent improvements in the design of imprinters and form sets, the patent described the principal object of the AM machine: "it is the object of the present invention to further advance current practices of imaging form sets with characters having a high degree of clarity and outline accuracy through the use of small data recorders."

The '120 patent listed seven claims, the last of which was held to have been infringed. Claim 7 is described in the patent:

7. A method of making an impression on a form set from an embossed printing device which utilizes a carriage movable in opposite directions between a first and second position and having a pair of roller platens rotatably supported thereon, rolling one of the platens in printing relation to one portion of the printing device with the other platen in non-printing relation to another portion of the printing device when the carriage is moved in one direction, and rolling the other platen in printing relation to the other portion of the printing device with said one platen in non-printing relation to said one portion when the carriage is moved in the opposite direction.

Accompanying and illustrating the claims in the patent were drawings showing "a preferred embodiment of the present invention" as a "small data recorder" with its carriage and platform holding a merchant plate and customer card.

II. Proceedings Below

On April 27, 1978 AM initiated the proceedings leading to this litigation when it applied for reissue of the '120 patent pursuant to 35 U.S.C. Sec. 251. The purpose of the reissue proceeding is to correct inadvertent errors in the original patent which may make it "wholly or partly inoperative or invalid." Id. AM sought to amend its patent by adding additional references to "prior art." Prior art references are important because the statutory presumption of the patent's validity, 35 U.S.C. Sec. 282, "is 'largely, if not wholly, dissipated' when pertinent prior art is not considered by the Patent Office." Medical Laboratory Automation v. Labcon, Inc., 670 F.2d 671, 674 (7th Cir.1981) (quoting Chicago Rawhide Mfg. Co. v. Crane Packing Co., 523 F.2d 452, 458 (7th Cir.1975), cert. denied, 423 U.S. 1091, 96 S.Ct. 887, 47 L.Ed.2d 103 (1976)). Failure of the examiner to consider pertinent prior art, then, leaves the patent open to attack on numerous grounds such as "obviousness" (35 U.S.C. Sec. 103), anticipation (35 U.S.C. Sec. 102(a)), and fraud on the Patent Office (37 C.F.R. Sec. 1.56).

On November 17, 1980, NBS filed a petition and protest in the reissue proceeding, asking the Patent Office to withdraw AM's application and to strike it from the Patent Office files for violation of the duty of disclosure required under 37 C.F.R. Sec. 1.56. The patent examiner's initial opinion on February 12, 1981 noted that a prior art patent No. 3,340,800 ('800), also assigned to AM, "would clearly have been material and would have been a most pertinent reference." The examiner then considered the merits of the reissue application and rejected all claims of the '120 patent. The examiner specifically rejected Claim 7 on two grounds: (1) "under 35 U.S.C. Sec. 102(a) as fully anticipated by Cox [patent No. 539,356]"; and (2) "as being 'on sale' [under Sec. 102(b) ] more than a year before the [October 22, 1964] filing date" of the original '120 patent application. AM appealed to the Patent Office Board of Appeals. At AM's request the appeal was suspended pending the outcome of this litigation.

While the reissue proceedings were still pending, appellant NBS filed two complaints in federal district court. In pertinent part NBS sought a declaratory judgment "for the purpose of resolving an actual controversy between the parties with respect to the validity, enforceability and infringement by plaintiffs of each of AM's United States Patents 3,138,091; 3,272,120; 3,340,800; 3,763,777." NBS also sought treble damages and attorneys' fees under 35 U.S.C. Secs. 284 and 285 respectively. AM counterclaimed against NBS, alleging the validity and infringement of each of its four patents and similarly requesting treble damages and attorneys' fees. The trial lasted eleven days, from April 13 to April 28, 1982.

On August 26, 1982, the district court issued a 49-page memorandum opinion, with a careful analysis of the expert testimony, exhibits, and applicable law. ³ The court concluded, inter alia, that claim 7 of AM's '120 patent was "valid and infringed by plaintiffs' devices." The court enjoined NBS from further manufacture and sale of the infringing imprinters and ordered an accounting "as to the amount of damages suffered by AM by reason of NBS' infringement of Claim 7." Based on this accounting, the court ordered that "AM shall recover from Plaintiffs the amount of these damages, not less than a reasonable royalty."

Observing that "this is a close case," that "at any time the validity and infringement of the three patents was 'open to honest doubt,' " that "defendants have not proven that plaintiffs acted in a bad faith belief that the patents were invalid," and that "defendants have not carried their burden of proof as to willful infringement," the court denied both parties' requests for treble damages and attorneys' fees.

Finally, in the same order, the court certified its judgment for immediate appeal pursuant to Fed.R.Civ.P. 54(b). NBS now appeals both the court's judgment of validity and infringement and its denial of attorneys' fees and costs.

III. Contentions on Appeal

Appellant NBS raises numerous issues on appeal which are summarized in the following five contentions:

1. The Patent Offices expertise in resolving issues and the attendant presumption of its correct exercise are controlling, and alternatively AM is "collaterally estopped to assert that claim 7 is valid, having unsuccessfully contested that issue in a fair proceeding before the [Patent Office];"

2. Claim 7 is invalid for being obvious under 35 U.S.C. Sec. 103.

3. Claim 7 is invalid, having been "anticipated" by prior art under 35 U.S.C. Sec. 102(a) and having been "on sale" for more than a year as prohibited by 35 U.S.C. Sec. 102(b).

4. The court erred in concluding that claim 7 was infringed under the "doctrine of equivalents."

5. The court erred in denying NBS attorneys' fees and costs provided for under 28 U.S.C. Sec. 1927 and 35 U.S.C. Sec. 285.

IV. Effect of Patent Office Reissue Decision

NBS contends that the Patent Office's decision rejecting claim 7 in the reissue proceeding was entitled to a "presumption of correctness" in the district court. This presumption, NBS argues, shifted the burden to AM to prove the decision was wrong. Alternatively, NBS argues that "[i]ntertwined with the presumption" is the doctrine of collateral estoppel which would prevent AM from relitigating the same issues decided by the Patent Office.

A patent is presumed valid. 35 U.S.C. Sec. 282. This court has held unequivocally that section 282 "places the burden of...