Slip Track Systems, Inc. v. Metal-Lite, Inc.

• Decision Date: 11 September 2002
• Docket Number: No. 01-1196.,No. 01-1187.,01-1187.,01-1196.
• Citation: 304 F.3d 1256
• Parties: SLIP TRACK SYSTEMS, INC. and Todd A. Brady, Plaintiffs-Appellants, v. METAL-LITE, INC., Thomas R. Herren, and Gene N. Carpenter, Defendants-Cross Appellants.
• Court: U.S. Court of Appeals — Federal Circuit

304 F.3d 1256

SLIP TRACK SYSTEMS, INC. and Todd A. Brady, Plaintiffs-Appellants, v. METAL-LITE, INC., Thomas R. Herren, and Gene N. Carpenter, Defendants-Cross Appellants.

No. 01-1187.

No. 01-1196.

United States Court of Appeals, Federal Circuit.

DECIDED: September 11, 2002.

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R. Joseph Trojan, Trojan Law Offices, of Beverly Hills, CA, argued for plaintiffs-appellants. Of counsel were Joyce E. Crucilllo; and Paul Grandinetti, Levy & Grandinetti, of Washington, DC.

Mark H. Plager, Law Offices of Mark H. Plager, of Placentia, CA, argued for defendants-cross appellants.

Before SCHALL, BRYSON and GAJARSA, Circuit Judges.

GAJARSA, Circuit Judge.

The parties in this case own interfering patents that teach a slotted header that prevents dry wall from cracking during earthquakes by permitting the wallboard to move up and down. Plaintiff-Appellant Slip Track Systems, Inc. ("Slip Track") owns U.S. Patent No. 5,127,760 ("the '760 patent") and Defendant-Cross-Appellant Metal-Lite Inc. ("Metal-Lite") owns¹ U.S. Patent No. 5,127,203 ("the '203 patent"). Slip Track appeals the judgment of the United States District Court for the Central District of California granting Metal-Lite priority of invention. Slip Track Sys., Inc. v. Metal-Lite, Inc., No. 98-20 (C.D.Cal. Jan. 24, 2001) ("Final Judgment"). Metal-Lite cross-appeals the district court's dismissal of its cross-complaint for infringement and denial of leave to amend the complaint. We vacate the grant of summary judgment of priority and remand. We also reverse the dismissal of the cross-complaint and affirm the denial of leave to amend the complaint.

BACKGROUND

Slip Track filed a complaint to institute an interference proceeding in district court pursuant to 35 U.S.C. § 291. The parties did not dispute that the patents interfered. The application that led to the '203 patent was filed on February 9, 1990. Claim 1 of the '203 patent states:

1. In a seismic/fire resistant wall structure installed between a floor and a [sic] overhead structural member:

An elongated channel member and a pair of side flanges depending from the base and defining a downwardly opening channel;

A layer of fire retardant material extending along the base within the channel;

A plurality of vertically extending slotted openings in the side flanges at spaced intervals along the length of the channel member;

A plurality of studs extending vertically between the floor and the channel member with upper portions of the studs extending into the channel in alignment with the slotted openings;

fasteners passing through the slotted openings and into the studs to anchor the upper portions of the studs against horizontal movement but permitting relative vertical movement between the channel member and the studs; and

fire retardant wallboard mounted on the studs and extending from the floor to the channel member.

'203 patent, col. 3, ll. 22-43. The application that led to the '760 patent was filed on July 26, 1990. Claim 1 of the '760 patent states:

1. A building construction assembly that includes a header and a stud wherein the header is capable of vertical movement relative to said assembly comprising:

a header having a web and flanges with said flanges connected to said web;

at least one of said flanges having at least one vertical slot therein;

a stud having a width less than the distance between said flanges of said header and having a top end;

said stud having at least one hole formed therein proximal to said top end;

said top end fitting between said flanges perpendicular to said header positioned so that said hole is aligned with said vertical slot; and

an attachment means passing through said slot and through said hole to slideably unite said header to said stud whereby said slot permits said header to move vertically with respect to said stud while restricting horizontal movement of said header.

'760 patent, col. 4, ll. 35-54.

Before the district court, Slip Track presented documentary evidence that it had conceived the invention in September of 1989. Slip Track contended that it had reduced the invention to practice in October of 1989, when its inventor created its first prototype, made of cardboard ("First Prototype"). Slip Track presented evidence that one skilled in the art who saw the First Prototype would know that the invention worked. While Metal-Lite challenged this assertion, it did not present contrary testimony. Slip Track also attempted to prove, in the alternative, that its inventor had constructed a full metal wall assembly in December of 1989 ("Second Prototype"). Metal-Lite asserted that this evidence was insufficient because it was based solely on inventor testimony and was not corroborated. Metal-Lite relied on its filing date of February 9, 1990 for constructive reduction to practice.

In a tentative ruling on summary judgment motions, the district court found that the patents were interfering and that the inventor of Slip Track's '760 patent, Mr. Brady, conceived the invention on September 18, 1989, while the inventor of Metal-Lite's '203 patent, Mr. Paquette, conceived of the invention between October 11 and 14, 1989. Slip Track Sys., Inc. v. Metal-Lite, Inc., No. 98-20, slip op. at 2 (C.D.Cal. Mar. 8, 1999) ("Tentative Priority Ruling"). In the same ruling, the district court found that Slip Track had not reduced the invention to practice before Metal-Lite's February 9, 1990 reduction to practice date. Id. at 2-3. In a subsequent order, the district court ruled in accordance with its tentative rulings, awarding priority to Metal-Lite's '203 patent and granting Metal-Lite partial summary judgment. Slip Track Sys., Inc. v. Metal-Lite, Inc., No. 98-20, slip op. at 1-2 (C.D.Cal. July 13, 1999) ("Partial Summary Judgment").

Slip Track appeals the district court's determination of priority. In its analysis, the district court incorrectly applied a clear and convincing evidence standard instead of a preponderance of the evidence standard in determining priority. It is undisputed that the district court applied the wrong standard of proof in determining whether Slip Track had reduced the invention to practice prior to Metal-Lite. The parties do dispute, however, whether or not this misapplication was harmless error.

Metal-Lite has filed a cross-appeal concerning two additional issues. First, Metal-Lite asserts that the district court abused its discretion when it denied Metal-Lite's motion to amend its answer and cross-complaint to allege claims of patent unenforceability and unclean hands. On January 25, 1999, the district court issued a scheduling order that required all motions to amend the pleadings to be filed within 60 days. It also provided that discovery conclude on September 30, 1999. During discovery Metal-Lite sought evidence to corroborate its potential claim of fraud on the PTO, and claims to have found it when it deposed the inventor of the prior art, Mr. Gilmour, on September 22, 1999. According to Metal-Lite this was the first time that there was sufficient evidence to assert such a claim. The district court denied that motion. Second, Metal-Lite appeals the district court's ruling that Metal-Lite is collaterally estopped from asserting a claim of patent infringement against Slip Track based on a judgment of the California Superior Court in Brady v. Herren, No. 771130 (Cal.Super.Ct.1999), which found that Slip Track shares a 50% ownership in the '203 patent as a result of a partnership between the parties. Final Judgment, slip op. at 2-3.

We have jurisdiction over this appeal pursuant to 28 U.S.C. § 1295(a)(1).

STANDARD OF REVIEW

This court reviews a grant of summary judgment de novo, drawing all reasonable inferences in favor of the non-movant and reapplying the standards used by the district court. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

Priority, conception, and reduction to practice are questions of law based on subsidiary factual findings. Cooper v. Goldfarb, 154 F.3d 1321, 1327, 47 USPQ2d 1896, 1901 (Fed.Cir.1998). This court reviews the ultimate issues of conception and reduction to practice de novo. Hybritech Inc. v. Monoclonal Antibodies, Inc., 802 F.2d 1367, 1376, 231 USPQ 81, 87 (Fed. Cir.1986). Junior applicants in an administrative proceeding must establish prior invention by a preponderance of the evidence and the burden is the same in district court. Environ Prods., Inc. v. Furon Co., 215 F.3d 1261, 1265, 55 USPQ2d 1038, 1041-42 (Fed.Cir.2000).

We review a district court's denial of a request to modify a pre-trial order under the law of the regional circuit, because it is a procedural issue not pertaining to the patent laws. See Panduit Corp. v. All States Plastic Mfg. Co., 744 F.2d 1564, 1574-75, 223 USPQ 465, 472 (Fed. Cir.1984) ("When we review procedural matters that do not pertain to patent issues, we sit as if we were the particular regional circuit court where appeals for the district court we are reviewing would normally lie. We would adjudicate the rights of the parties in accordance with the applicable regional circuit law."). The applicable regional circuit in this case is the Ninth Circuit, which reviews a denial of a request to modify the pre-trial order for an abuse of discretion. Johnson v. Mammoth Recreations, Inc., 975 F.2d 604, 606 (9th Cir.1992).

This court also applies regional circuit law to the application of collateral estoppel. See Bayer AG. v. Biovail Corp., 279 F.3d 1340, 1345, 61 USPQ2d 1675, 1679 (Fed.Cir.2002). The Ninth Circuit has held that the availability of collateral estoppel is a mixed question of law and fact reviewed de novo by the appellate court. Plaine v. McCabe, 797 F.2d 713, 718 (9th Cir.1986). Federal courts must give state court judgments full faith and credit by applying the preclusion law of the rendering state. Migra v. Warren City Sch. Dist....