Nilssen v. Osram Sylvania, Inc.

• Decision Date: 10 October 2007
• Docket Number: No. 2006-1550.,2006-1550.
• Citation: 504 F.3d 1223
• Parties: Ole K. NILSSEN and Geo Foundation, Ltd., Plaintiffs-Appellants, v. OSRAM SYLVANIA, INC. and Osram Sylvania Products, Inc., Defendants-Appellees.
• Court: U.S. Court of Appeals — Federal Circuit

504 F.3d 1223

Ole K. NILSSEN and Geo Foundation, Ltd., Plaintiffs-Appellants, v. OSRAM SYLVANIA, INC. and Osram Sylvania Products, Inc., Defendants-Appellees.

No. 2006-1550.

United States Court of Appeals, Federal Circuit.

October 10, 2007.

Paul M. Smith, Jenner & Block LLP, of Washington, DC, argued for plaintiffs-appellants. With him on the brief were Sam Hirsch and Caroline Lewis Wolverton; and Harry Roper, Raymond N. Nimrod, and Jonathan Hill, of Chicago, IL, of counsel was Aaron A. Barlow.

Brian D. Sieve, Kirkland & Ellis LLP, of Chicago, IL, argued for defendants-appellees. With him on the brief were Garret A. Leach, Kal K. Shah, and Serena J. Gondek; and Christopher Landau, of Washington, DC.

Before MAYER and LOURIE, Circuit Judges, and LINARES, District Judge.^*

LOURIE, Circuit Judge.

Ole K. Nilssen and the Geo Foundation, Ltd. (collectively, "appellants") appeal from the judgment of the United States District Court for the Northern District of Illinois in favor of Osram Sylvania, Inc. and Osram Sylvania Products, Inc. (collectively, "Osram") holding fifteen patents issued to Nilssen and exclusively licensed to the Geo Foundation unenforceable for inequitable conduct. Because the district court did not abuse its discretion, we affirm the court's entry of judgment of unenforceability.

BACKGROUND

Nilssen is the inventor on a large number of patents related to electrical lighting products. At issue in this appeal are fifteen of his patents, the first eleven allegedly infringed by Osram and the last four withdrawn shortly before trial: U.S. Patents 4,857,806 ("the '806 patent"); 5,164,637 ("the '637 patent"); 5,233,270 ("the '270 patent"); 5,343,123 ("the '123 patent"); 5,402,043 ("the '043 patent"); 5,416,386 ("the '386 patent"); 5,432,409 ("the '409 patent"); 5,479,074 ("the '074 patent"); 5,481,160 ("the '160 patent"); 5,510,680 ("the '680 patent"); and 5,510,681 ("the '681 patent") (collectively the "patents in suit"); and 4,677,345 ("the '345 patent"); 5,047,690 ("the '690 patent"); 5,189,342 ("the '342 patent"); and 5,341,067 ("the '067 patent"). The patents relate to compact fluorescent light bulbs and to ballasts for gas discharge lamps such as fluorescent light bulbs. A ballast converts the low frequency alternating current power provided by a utility to high frequency alternating current power necessary for the operation of gas discharge lamps.

After initially relying on attorneys to prosecute his patents, in 1983 Nilssen began prosecuting his own patent applications, including those resulting in the patents in suit, because he felt that his understanding of the subject matter was better than that of any attorney. Nilssen was sufficiently knowledgeable of patent law and practice to cite the Manual of Patent Examining Procedure ("MPEP"), patent statutes and regulations, and case law during prosecution of his patent applications.

Nilssen established the Geo Foundation as a not-for-profit charitable organization in the Cayman Islands in 1998. Since June 2000, the Geo Foundation has been the exclusive licensee of Nilssen's patents. Prior to that date, Nilssen licensed at least some of the patents in suit directly to Philips Electronics North America Corp. ("Philips"). Apparently, that license was canceled or revoked, and Geo began sublicensing those patents to Philips following the execution of its exclusive license agreement with Nilssen. The Geo Foundation receives all licensing revenue from the patents and any damages awards or settlements resulting from lawsuits to enforce the patents. It pays all litigation costs associated with those lawsuits, and it pays Nilssen twenty-five percent of its gross income.

Appellants sued Osram in 2000 alleging that electronic ballasts manufactured and sold by Osram infringed eleven of Nilssen's patents. Among the defenses asserted by Osram was that Nilssen had engaged in inequitable conduct in the procurement of the patents. The district court held a six-day bench trial on Osram's inequitable conduct defenses.

First, the court determined that Nilssen's submission of two affidavits from Dale Fiene, one during reexamination of the '345 patent and one during examination of the application that led to the '690 patent, in support of the patentability of claims rejected by the examiner constituted inequitable conduct because the affidavits failed to disclose Fiene's personal and professional association with Nilssen and Fiene's financial interest in Nilssen's patents. However, the court found that the reference to the '345 patent in the description of the prior art in the '270 and '681 patents and the fact that the three patents share a common parent application did not demonstrate sufficient relatedness among the three patents for the inequitable conduct during prosecution of the '345 patent to also render the '270 and '681 patents unenforceable under what the court referred to as the "doctrine of infectious unenforceability."

Second, the district court considered whether Nilssen's incorrect payment of small entity maintenance fees for the patents in suit constituted inequitable conduct. Nilssen entered into a Compact Fluorescent Lamp Agreement (the "CFLA") with Philips, effective December 7, 1995. The CFLA provided as follows (emphasis added):

Nilssen expects to offer CFL manufacturers a preferential running royalty rate under his CFL patents for a limited time period starting the first quarter of 1996. Nilssen and Philips agree that Nilssen will offer and Philips will take a standard license from Nilssen under his CFL patents at the preferential rate provided that no royalties or payments will accrue under such license until Nilssen has licensed one CFL competitor having at least 10% Dollar share of the U.S. market for CFL's.

The court found that the CFLA covered the '806, '637, '270, '123, '680, and '681 patents. Nilssen also entered into a Patent License Agreement ("PLA") with Philips, effective January 1, 1996. The court found that the PLA covered the '806, '637, '043, '386, '409, '074, '160, '680, and '681 patents. Because the court found that these agreements created a license or an obligation to license all of the patents in suit, and Philips had more than 500 employees at all relevant times, the court concluded that Nilssen was obligated to pay large entity maintenance fees on all the patents in suit after December 7, 1995, the date of the CFLA. The court also found that Nilssen had made twenty-one improper small entity payments, including at least one for each patent in suit, compared with eight proper large entity payments. The court did not credit Nilssen's explanation that he did not believe that large entity payments were required for the patents once they were licensed to the nonprofit Geo Foundation in 2000. The court thus concluded that all of the patents in suit were unenforceable for inequitable conduct in failing to pay large entity maintenance fees.

Third, the court found that Nilssen had intentionally misclaimed an effective priority date of March 20, 1978, in the '637, '043, '386, '409, '160, '680, and '681 patents. The court found that the statutory copendency and/or cross-reference requirements were not satisfied for each of these patents. The court found the false claims material because they allowed Nilssen to potentially avoid prior art. The court based its finding of intent in part on two letters Nilssen sent to a customer, Advance Transformer Co., stating that it might be difficult to obtain effective patent protection for some parts of a new ballast design that might "be considered as representing known art." The court thus concluded that the '637, '043, '386, '409, '160, '680, and '681 patents were unenforceable for inequitable conduct based upon the claims of false effective priority dates.

Fourth, the court considered whether Nilssen's failure to disclose to the examiner ongoing litigation with Motorola rendered some of the patents unenforceable. Nilssen filed a lawsuit against Motorola alleging infringement of six patents on October 19, 1993. Motorola denied infringement, claiming invalidity for anticipation, obviousness, and failure to observe the requirements of 35 U.S.C. § 112. Those claims were dismissed without prejudice on July 23, 1996. A new lawsuit was filed against Motorola alleging infringement of the same six patents plus nine additional Nilssen patents on September 3, 1996. All of the patents involved in those suits pertained to the same general subject matter — electronic ballasts — claimed in the patents in suit. The applications leading to the '123, '043, '386, '409, '074, '160, '680, and '681 patents were pending during the time of the Motorola suits, but Nilssen failed to inform the examiner of the litigation. The court found that Nilssen intended to mislead the United States Patent and Trademark Office ("PTO") and did not credit Nilssen's testimony that he was unaware of the duty to disclose information concerning the ongoing litigation to the PTO. The court thus concluded that the '123, '043, '386, '409, '074, '160, '680, and '681 patents were unenforceable for inequitable conduct for failing to report the existence of the Motorola litigation to the PTO.

Fifth, the court concluded that Nilssen had engaged in inequitable conduct in the prosecution of the '342 patent and the '067 patent as well as the '806, '043, and '681 patents by failing to identify to the PTO relevant prior art of which he had knowledge. However, the court found that the "descendant relationship" of the '123, '043, '386, '409, and '160 patents to the '342 patent did not render them unenforceable through what it referred to as the "doctrine of infectious unenforceability."

Finally, the court rejected Osram's argument that each of the patents in suit should be held unenforceable under the doctrine of unclean hands.

Appellants timely appealed. We have jurisdiction pursuant to 28 U.S.C. § 1295(a)(1).

DISCUSSION

Each of the...