REFAC INTERN. v. Lotus Development Corp., 89 Civ. 5094 (SS).

• Decision Date: 18 April 1995
• Docket Number: No. 89 Civ. 5094 (SS).,89 Civ. 5094 (SS).
• Parties: REFAC INTERNATIONAL, LTD. and Forward Reference Systems, Ltd., Plaintiffs, v. LOTUS DEVELOPMENT CORPORATION, Defendant.
• Court: U.S. District Court — Southern District of New York

887 F. Supp. 539

REFAC INTERNATIONAL, LTD. and Forward Reference Systems, Ltd., Plaintiffs, v. LOTUS DEVELOPMENT CORPORATION, Defendant.

No. 89 Civ. 5094 (SS).

United States District Court, S.D. New York.

April 18, 1995.

Epstein Becker & Green, P.C. (Kenneth J. Kelly, Claudia M. Cohen, of counsel), Elias, Goodman & Shanks (Paul Goodman, of counsel), New York City, for plaintiffs.

Baker & Botts (Henry B. Gutman, Kerry L. Konrad, Jeffrey E. Ostrow, of counsel), New York City, for defendant.

FINDINGS OF FACT, CONCLUSIONS OF LAW AND ORDER

SOTOMAYOR, District Judge.

The quid pro quo for obtaining a patent, and thereby securing its seventeen-year exclusive right to make, sell, and use an invention that the constitutionally-authorized, government-granted monopoly provides, is that adequate disclosure of the invention be made in the application for the patent. See 35 U.S.C. § 112. The patent application must teach the world, or at least those in the world who are "skilled in the relevant art," how to make the invention. Id.

The action before me involves a claim by plaintiffs REFAC International, Ltd. and Forward Reference Systems, Ltd. (collectively "REFAC")¹ that defendant Lotus Development Corporation ("Lotus"), the manufacturer of some well-known "spreadsheet" computer programs, infringed REFAC's Patent, number 4,398,249 (the "Patent"). Lotus has denied the infringement and has raised an affirmative defense that REFAC's Patent was procured through inequitable conduct before the U.S. Patent and Trademark Office (the "PTO"). Because a meritorious defense of inequitable conduct would render the Patent unenforceable and thereby defeat any claim of infringement, a separate bench trial, which is the subject of the instant Order, was held on the affirmative defense under Fed. R.Civ.P. 42(b).

Lotus's allegation of inequitable conduct concerns the disclosure requirement of 35 U.S.C. § 112. Lotus maintains that REFAC convinced the PTO that its disclosure was adequate by fraudulently omitting material information about purportedly "disinterested" individuals who had submitted affidavits attesting to their belief that, standing alone, the disclosure in the patent application could teach them to make the subject invention. The material omissions involved prior employment by the applicants, as well as contact with and knowledge of the invention process by the affiants. REFAC denies that the omissions at issue were material or that its predecessors-in-interest intended to commit a fraud upon the PTO. For the reasons discussed below, I find that inequitable conduct occurred before the PTO and that the Patent should be rendered unenforceable.

STIPULATED FACTS

I adopt as findings the following undisputed facts agreed to by the parties in their Joint Pre-Trial Order dated July 20, 1993:

1. Defendant Lotus is a Delaware corporation with its principal place of business in Cambridge, Massachusetts.

2. Plaintiff REFAC International, Ltd. is a Nevada corporation with its principal place of business in New York, New York.

3. Plaintiff Forward Reference Systems, Ltd. ("Forward Systems")² is a corporation organized pursuant to the laws of the Province of Ontario, Canada, with its principal place of business in Downsview, Ontario, Canada. Forward Systems is controlled by Rene K. Pardo ("Pardo") and Remy Landau ("Landau"), who are citizens of Canada.

4. On August 12, 1970, Pardo and Landau filed an application for U.S. Letters Patent entitled "A Process and Apparatus for Converting a Source Program Into An Object Program" (the "Patent Application").

5. By office action mailed July 22, 1971, the U.S. Patent and Trademark Office (the "PTO") rejected the claims of the Patent Application on the grounds of, among other things, inadequate disclosure of the invention under 35 U.S.C. § 112(1), (2) and (3).

6. In response, Pardo and Landau filed an Amendment to the Patent Application on October 15, 1971 (the "October 1971 Amendment").

7. In connection with the October 1971 Amendment, Pardo and Landau also submitted an affidavit executed by Pardo (the "Pardo Affidavit") stating, among other things:

"That in view of the facts given above, I believe that the presence of the flow chart of Figure 2 and the accompanying description in the specification of Application Serial No. 63,185 represent a sufficient disclosure to carry out the desired functions of the digital computer, and as such, would therefore be a full disclosure of the programming necessary to enable one with ordinary skill in the art of computer programming to make and use this invention."

8. By office action mailed February 1, 1972, the PTO issued a "Final Rejection" of the claims of the Patent Application (as amended by the October 1971 Amendment) on the grounds of, among other things, inadequate disclosure under 35 U.S.C. § 112(1), stating:

"the disclosure is not deemed of the level which would enable one with ordinary skill in the art to make and use the invention. The flow diagram which applicants represent in figure 2 is not of the detailed level which a programmer would need in order to write a program from. The general outline shown in figure 2 will still have to be broken down into fundamentals of what is necessary to write a program."

9. The PTO did not deem the Pardo Affidavit (along with the amended claims) "sufficient to warrant a withdrawal of the objection and rejection", stating:

"It should be pointed out that an affidavit by applicant is self serving and therefore has very little probative value in a response to an objection that the specification is inadequately disclosed. By filing an application, applicants have indicated that it fulfills the statutory requirements set out in 35 U.S.C. 112, and an objection by the Examiner that the disclosure does not meet the conditions set out there, cannot be overcome by an affidavit by an applicant that it does. Emphasis added.

"A challenge by the Examiner should put an applicant to his proofs. A declaration by coapplicant is no more probative of the sufficiency of the disclosure than the specification as originally filed, which has been objected to."

10. In further response to the Final Rejection, Pardo and Landau filed an Amendment Under Rule 116 (the "Rule 116 Amendment") with the PTO on June 29, 1972. Pardo and Landau also filed a "Joint Statement of Rene K. Pardo and Remy Landau" (the "Joint Statement") to show that detailed coding was in existence prior to the filing date of the application, and a second affidavit executed by Pardo (the "Second Pardo Affidavit") in support of the Rule 116 Amendment to show that "the claimed invention was actually successfully practiced as early as August 12, 1970."

11. In the Rule 116 Amendment, Pardo and Landau stated, among other things, that "the present invention is directed to the computer scientist or compiler writer, not a mere programmer, and it is such compiler writer who is the man of `ordinary skill in the art' who would practice the invention as defined by the claims." Pardo and Landau sought to "overcome" the rejection on the ground of inadequate disclosure by showing that "the man of ordinary skill in the art, the compiler writer, and even a mere programmer of ordinary skill in the art, could produce a program (as was actually done) from Applicants' disclosure."

12. To make this showing, Pardo and Landau submitted with the Rule 116 Amendment the affidavit of Peter H. Jones ("Jones"). They also submitted the affidavits of Robert F. Bullen ("Bullen") and David H. Cikra ("Cikra") (collectively, the "Affidavits").

13. At the time that the Rule 116 Amendment was filed, Pardo and Landau controlled an entity called Lanpar Ltd. ("Lanpar"), which marketed computer software programs including LANPAR (the "LANPAR Program") and OUTCOM.

14. The LANPAR Program was offered commercially by Lanpar as of the date of the Patent Application, and had been licensed for use by third parties as of that date.

15. The LANPAR Program and OUTCOM contained Pardo and Landau's best implementation of the invention claimed in the Patent Application. The Program (a portion of which is described in the Joint Statement) is described by Pardo as the "actual implementation of the invention as it existed as of August 12, 1970 in relation to Fig. 2 of the patent application drawing", which "claimed invention" Pardo averred in the Second Pardo Affidavit "was actually successfully practiced on a General Electric 400 Series Time Sharing Computer at least as early as August 12, 1970."

16. At the time that the Rule 116 Amendment was filed, Pardo and Landau were represented in the proceedings before the PTO by R. Gale Rhodes, Jr., Esq. ("Rhodes"), of the firm of Popper, Bain, Bobis, Gilfillan & Rhodes, located in Newark, New Jersey.

17. It was Rhodes who conceived of the idea to submit "third-party" affidavits to the PTO to overcome the Section 112(1) rejection, after receipt of the Office Action dated February 1, 1972, and prior to the interview with the PTO on April 12, 1972.

18. Prior to submission of the Rule 116 Amendment, Rhodes states that he advised Pardo and Landau to seek what Rhodes refers to as "third-party affidavits" to submit in its support.

19. Pardo and Landau identified and selected the persons who submitted the Affidavits. Landau also personally collected information as to the background of Cikra and furnished that information to Rhodes.

20. Jones worked for not more than eight weeks at Lanpar learning internal details of the LANPAR Program. His job included his becoming capable of correcting "bugs" and making improvements to the LANPAR program. Jones quit Lanpar at the end of February 1972.

21. After Jones left Lanpar, he was asked by Pardo or Landau to submit an affidavit to the PTO stating his opinion that, using only the disclosures in the Application and knowledge of programming techniques known to him on August 12, 1970, he could have written on that date a detailed...