Smith Intern., Inc. v. Hughes Tool Co., s. 84-1094

• Decision Date: 30 April 1985
• Docket Number: Nos. 84-1094,84-1767,s. 84-1094
• Parties: SMITH INTERNATIONAL, INC., etc., Appellant, v. HUGHES TOOL COMPANY, Appellee. Appeal
• Court: U.S. Court of Appeals — Federal Circuit

Page 1572

759 F.2d 1572

225 U.S.P.Q. 889

SMITH INTERNATIONAL, INC., etc., Appellant, v. HUGHES TOOL COMPANY, Appellee.

Appeal Nos. 84-1094, 84-1767.

United States Court of Appeals Federal Circuit.

April 30, 1985.

Ned L. Conley, Butler & Binion, Houston, Tex., argued for appellant. With him on the brief were Jeffrey W. Tayon, William E. Shull, David S. Wise and Gregorey L. Maag, Houston, Tex.; Charles Alan Wright, Austin, Tex., of counsel.

Rolf Stadheim, Haight, Hofeldt, Davis & Jambor, Chicago, Ill., argued for appellee. With him on the brief were Britton A. Davis and Dorsey L. Baker, Chicago, Ill.; David B. Toy; Steven O. Kramer, Lawler, Felix and Hall, Los Angeles, Cal., of counsel.

Before FRIEDMAN, BENNETT and MILLER, Circuit Judges.

FRIEDMAN, Circuit Judge.

These consolidated appeals challenge orders of the United States District Court for the Central District of California that (1) refused to dissolve a preliminary injunction against patent infringement, (2) denied a motion for summary judgment that the patents are invalid because they had been procured by fraud on the Patent Office or are unenforceable because the patentee's action before that Office constituted inequitable conduct, and (3) barred the infringer in the relief phase of the case from introducing any evidence relating to the latter contention. We affirm in part and dismiss the appeals in part.

I

A. The Prior Proceedings.

In 1972, the appellant, Smith International, Inc. (Smith), filed in the United States District Court for the Central District of California a complaint against the appellee, Hughes Tool Company (Hughes), seeking a declaratory judgment that Hughes' U.S. Patent No. 3,397,928 (the '928 patent) was invalid. Hughes filed a counterclaim asserting that Smith had infringed both the '928 patent and Hughes U.S. Patent No. 3,476,195 (the '195 patent). Both patents are directed to "rock bits," which are earth-boring tools used in the drilling of oil and gas wells. Hughes' counterclaim sought damages and injunctive relief.

In its answer and during pretrial proceedings, Smith admitted that devices it manufactured infringed certain claims of the two patents, but asserted that the patents were invalid and unenforceable.

Following the trial in 1977, the district court held in 1979 that the two patents were invalid and dismissed Hughes' counterclaim. The court found that certain of Hughes' "submittals" to the Patent Office "did not, in some material respects, meet the applicant's uncompromising duty to make a full and fair disclosure of all facts which may affect the patentability of his invention" (finding 29). It found that the '928 patent was invalid because, among other reasons, "(a) invalidating prior art ... [was] not before the examiner and (b) the failure by Hughes to make a fair and full disclosure materially prevented the examiner from properly interpreting the prior art which was before him" (finding 32). The court, however, eliminated from Smith's proposed Conclusions of Law No. 3, which read:

Hughes['] failure to make a full and fair disclosure to the Patent Office constituted fraud on the Patent Office and makes the claims of the seal ['928] patent invalid.

The Court of Appeals for the Ninth Circuit reversed, holding that Smith had failed to meet its burden of proving that either patent was invalid. Smith International, Inc. v. Hughes Tool Company, 664 F.2d 1373, 215 USPQ 592 (9th Cir.), cert. denied, 456 U.S. 976, 102 S.Ct. 2242, 72 L.Ed.2d 851 (1982) (Smith I ). The court noted that the district court had "adopted almost verbatim and used as its opinion the proposed findings of Smith International" and that "[t]he Ninth Circuit has repeatedly held that adopted findings require increased appellate scrutiny." Id. at 1375, 215 USPQ at 593-94. The "Conclusion" of the court's opinion read as follows:

The judgment is reversed, and Patents '928 and '195 are declared to be valid. The Hughes counterclaim for infringement is reinstated, and the cause is remanded for further proceedings on the counterclaim.

Id. at 1377, 215 USPQ at 595.

Following the remand, Hughes moved for entry of judgment in its favor, on the ground that Smith had admitted infringement of both patents. It also sought a preliminary injunction. The district court agreed that Smith had conceded infringement, but it declined to enter judgment for Hughes. It concluded that it was "appropriate, rather, to proceed to a determination of the nature and the scope of plaintiff's infringement before entering judgment." No. 72-1231 HLH (Order of Oct. 6, 1982), quoted in Smith International, Inc. v. Hughes Tool Company, 718 F.2d 1573, 1577, 219 USPQ 686, 689 (Fed.Cir.), cert. denied, --- U.S. ----, 104 S.Ct. 493, 78 L.Ed.2d 687 (1983) (Smith II ). The court declined to enter a preliminary injunction, "because it considered Smith's admission of infringement to be too general to meet the requirement of specificity for injunctive relief under Fed.R.Civ.P. 65(d)." Smith II, 718 F.2d at 1577, 219 USPQ at 689 (describing order of the district court). "[T]he court specifically rejected Smith's argument that there had been no determination of infringement." Id.

Hughes appealed the denial of the preliminary injunction to this court. We reversed and remanded the case "with instructions to issue an appropriate preliminary injunction enjoining Smith International, Inc. from infringing claim 1 of the '928 patent on such terms as are deemed proper by the district court." Id. at 1582, 219 USPQ at 693. We pointed out that "the validity of the Hughes patents has been adjudicated by a competent appellate court, which we assume considered all possible grounds for invalidating the patents, and yet it rejected them all," id. at 1579, 219 USPQ at 691, and that "[t]he Ninth Circuit Court's decision removed any question about the validity and enforceability of the patents," id. at 1580, 219 USPQ at 691. In a footnote, we stated:

The reinstatement of the Hughes counterclaim by the Ninth Circuit Court, and its remand for further proceedings, in no way indicates that the court viewed the fact of infringement as an open question. In our view, the "further proceedings" provision in the remand order refers to an accounting proceeding and a consideration of the matter of a permanent injunction. No further proceedings are necessary on the issue of whether infringement occurred.

Id. at 1580, 219 USPQ at 692.

B. The Present Appeals.

After the district court entered the preliminary injunction pursuant to our mandate, Smith moved the court (1) to grant partial summary judgment in its favor or alternatively to order a separate trial, and (2) to dissolve the preliminary injunction. Both motions were based on the contention that Hughes committed fraud on the Patent Office in obtaining the '928 patent. (Although, as discussed infra, p. 1578, this court has indicated that the term "inequitable conduct" is more appropriate than "fraud" in referring to proscribed conduct before the Patent and Trademark Office, in the interest of accuracy we use the term "fraud" in this opinion only where the court or the parties have used that term.) In April 1984, the district court denied the motions.

The court held that the law of the case barred Smith from now litigating the issue of fraud before the Patent Office. The court ruled that "the Ninth Circuit's decision that '928 is valid by clear implication decided the issue of fraud against Smith." The court further held that Smith had not provided "new evidence" that, under an exception to the law-of-the-case doctrine, would justify the court in reopening the question. The court concluded that the "new evidence" upon which Smith relied, was unavailable for that purpose because it either could have been provided at the earlier trial or merely was cumulative to the evidence already in the record.

The appeal in No. 84-1094 is from the order denying those motions.

In February 1984, Hughes moved in the district court to hold Smith in contempt of the preliminary injunction for manufacturing and selling a new device under Smith's U.S. Patent No. 4,372,629 which, according to Hughes, infringed the '928 patent. Prior to filing the motion, Hughes had amended its counterclaim to allege this new infringement. In apparent anticipation of the hearing on those issues, Hughes filed a motion in limine to preclude Smith from introducing any evidence relating to Hughes' alleged fraud on the Patent Office. Smith again moved to dissolve the preliminary injunction, relying on additional "newly discovered" evidence of fraud.

In September 1984, the district court entered an order barring Smith from introducing such evidence. The court also denied Smith's motion to dissolve the preliminary injunction.

The appeal in No. 84-1767 is from those two orders.

The trial of the contempt and infringement proceedings, which the district court combined, began in September. On October 16, the district court dismissed the contempt charge, ruled that the infringement trial would go forward, and recessed the trial to November 27. Smith then sought from us a writ of prohibition to prevent the district court from proceeding with the trial. We denied the writ on November 21. The trial of the infringement issue then went forward, and as far as we are aware that issue has not been decided.

II

The district court's refusal to dissolve the preliminary injunction was grounded on the court's conclusion that the decision of the Ninth Circuit in Smith I, as we interpreted it in Smith II, established as the law of the case that the patent had not been obtained through fraud on the Patent Office and that the exception to the law of the case for newly discovered evidence was unavailable to Smith. We have authority to review those orders under 28 U.S.C. 1292(a)(1) (1982) as "orders ... refusing to dissolve ... injunctions."

It is doubtful whether the district court had any authority to dissolve the...