St. Regis Paper Co. v. Royal Industries, s. 74-3268 and 74-3336
| Decision Date | 19 April 1977 |
| Docket Number | Nos. 74-3268 and 74-3336,s. 74-3268 and 74-3336 |
| Citation | 552 F.2d 309,194 USPQ 52 |
| Parties | ST. REGIS PAPER COMPANY, Plaintiff-Appellee, v. ROYAL INDUSTRIES, and Plas-Ties Subsidiary, Defendants-Appellants. ST. REGIS PAPER COMPANY, Plaintiff-Appellant, v. ROYAL INDUSTRIES, and Plas-Ties Subsidiary, Defendants-Appellees. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Robert M. Newell, Newell & Chester, Los Angeles, Cal., argued, for defendants-appellants.
Nicholas L. Coch, Anderson, Russell, Kill & Olick, New York City, argued, for plaintiff-appellee.
On Appeal from the United States District Court for the Central District of California.
Before ELY and WALLACE, Circuit Judges, and SOLOMON, * District Judge.
This case involves the validity of a patent on a plastic tie strip and a method for manufacturing the product. It also involves a license agreement for the patent rights and for the know-how used to manufacture the patented tie strips. The District Court held the patent invalid and permitted rescission of the license agreement. The Court denied the licensor royalties after the filing of this action, denied the licensee recovery of royalties paid before the filing of this action, and granted the licensor some compensation for its know-how. Both parties appeal.
Some time before June 1950, Gerald Bower formed a partnership to develop and market a plastic tie strip which could be used to tie bunches of fresh vegetables. In June 1950, the business was incorporated under the name of Plas-Ties Corporation (Plas-Ties).
On June 2, 1952, Bower filed an application for a patent on a plastic tie strip and a method for making the tie strip. The Patent Office rejected all of Bower's original claims, but he later succeeded by amendments to the application in getting some claims allowed on a narrower basis. A patent (U.S. Patent No. 2,767,113) was issued to Bower on October 16, 1956 (the Bower patent). The patented device consists of two plastic strips reinforced by a wire between them. The wire is embedded in one of the plastic strips and secured with a "cementitious substance" so that the casing cannot slide from or bunch up on the wire. The wire permits fastening the tie by merely twisting it. The plastic outer casing permits easy handling and prevents the wire from cutting the stalks of the vegetables.
In April 1963, Bower assigned his patent to Royal Industries (Royal), and Royal acquired 80 per cent of the outstanding stock of Plas-Ties. Bower owned the remaining 20 per cent of the stock, and he became president of Plas-Ties. In 1965, Royal acquired Bower's shares and Plas-Ties became a wholly owned subsidiary.
St. Regis Paper Company (St. Regis) supplies wrapping paper to the bakery industry through one of its subsidiaries, Pollack Paper Company. The use of tie strips significantly changed the packaging of bakery products in the early 1960's. The new method used a tie strip around one end of the package instead of having the package tightly sealed at both ends. St. Regis lacked the technical ability to manufacture tie strips. The Bower tie strips and the machines Bower developed were suitable for bakery packaging.
On May 1, 1963, Royal and its subsidiary Plas-Ties (hereinafter referred to jointly as "Royal") entered into a license agreement with St. Regis. Under this agreement, Royal licensed St. Regis to use the Bower patent and Royal's know-how to manufacture and sell the patented tie strips. St Regis agreed to pay Royal 10 per cent of its net dollar sales as royalties and also agreed to pay all reasonable expenses incurred by Royal in transferring its know-how to St. Regis. The agreement provided that it would terminate upon the expiration of the Bower patent in 1973.
Royal did make its know-how available to St. Regis. From 1963 to 1967, St. Regis paid Royal $174,642.04 for royalties and expenses.
Later, a dispute unrelated to this action arose between Royal and St. Regis on whether they had entered into an oral price fixing agreement. The dispute resulted in litigation between the parties. 1 In preparing for that litigation, St. Regis discovered evidence which it believed showed that Bower's patent was invalid. St. Regis stopped paying royalties after July 19, 1967. On April 24, 1968, St. Regis brought this action against Royal and Plas-Ties to declare the Bower patent invalid, to rescind the license agreement, and to recover royalties it paid. In a counterclaim, Royal sued St. Regis for patent infringement.
The District Court held the Bower patent invalid. It also dismissed Royal's counterclaim. The Court held that St. Regis was entitled to rescind the license agreement, but denied St. Regis and Royal a money judgment against the other. In other words, the Court held that St. Regis could not recover the royalties it had paid, and Royal could not collect additional royalties under the license agreement. The Court awarded Royal the reasonable value of its know-how, but found that this amount had been fully satisfied by St. Regis.
Both parties have appealed. The appeals raise four issues:
(1) Is the Bower patent valid?
(2) If the Bower patent is invalid, is St. Regis entitled to recover royalties it paid to use the patent?
(3) If the Bower patent is invalid, is Royal entitled to recover royalties for its know-how?
(4) Is St. Regis entitled to attorney fees?
The District Court held that the Bower patent was invalid for obviousness and because of a false oath, which failed to disclose that the patented product had been on sale for more than one year prior to the filing of the patent application.
A condition of patentability under the Patent Act of 1952 is non-obviousness. Section 103 of the Act provides:
"A patent may not be obtained . . . if the differences between the subject matter sought to be patented and the prior art are such that the subject matter as a whole would have been obvious at the time the invention was made to a person having ordinary skill in the art to which said subject matter pertains." 35 U.S.C. § 103.
Royal contends on appeal that the District Court failed to apply the proper standard for determining obviousness.
The issue of obviousness is ultimately a question of law, but the underlying analysis is one of fact. Graham v. John Deere Co., 383 U.S. 1, 17, 86 S.Ct. 684, 15 L.Ed.2d 545 (1966). The Supreme Court in Graham set forth the standard for determining obviousness under Section 103. The court must determine the scope and content of the prior art, the differences between the prior art and the claims at issue, and the level of ordinary skill in the pertinent art.
Here, the District Court determined that the prior art consisted of two lines of teachings. One consisted of tie strips manufactured and sold for more than a year before Bower applied for his patent. The other consisted of seven patents 2 which teach the use of a cementitious substance to bind wire or cord between two sheets of paper or other material.
The Court compared the teachings of the prior art with the claims of the Bower patent. It found that it was undisputed that tie strips manufactured and sold by Plas-Ties for more than a year before Bower applied for his patent were identical to the claims of the Bower patent, except for the use of a "cementitious coating" in the Bower patent to bind the wire to the plastic strips. And the Court found that the Wisbrock, Schindler, Crosby, Wick, and French patents teach the use of a cementitious substance to secure wire or cord between pieces of paper or other materials in the same manner and for the same purpose as the Bower patent.
Finally, the Court accepted the testimony of St. Regis's expert witness (Dean Fischer) on the level of skill in the art. Fischer testified that in view of prior teachings and the prior public use of unbonded tie strips, the product claimed in the Bower patent would have been obvious to a person of ordinary skill in the art.
Royal also argues that the Court failed to give proper weight to the presumed validity of a patent. Any such presumption would disappear, or at least be weakened, when it is shown that all the prior art had not been brought to the attention of the patent examiner. 35 U.S.C. § 282; Alcor Aviation, Inc. v. Radair, Inc., 527 F.2d 113, 115 (9th Cir. 1975), cert. denied,426 U.S. 949, 96 S.Ct. 3170, 49 L.Ed.2d 1186 (1976).
Claim 1 3 of the Bower patent describes a product which depends both on the position of the wire (embedded in one of the plastic strips) and the use of a "cementitious coating" to bind the wire to the plastic strips. The District Court, based on the file wrapper, found that the patent examiner was persuaded to allow claim 1 4, not because of the cementitious coating, but by the argument that Bower's positioning of the wire was a novel solution to the problem of enabling the plastic to get a good grip on the wire. Nevertheless, at the trial Royal did not dispute that more than a year before the patent application, Plas-Ties manufactured and sold tie strips which conformed in every respect to the claims of the Bower patent except for the use of a cementitious coating on the wire. These findings at least raised an issue whether Bower misrepresented the state of the prior art in his patent application and weakened the presumption of validity. See Monroe Auto Equipment Co. v. Superior Industries, Inc., 332 F.2d 473, 482 (9th Cir.), cert. denied, 379 U.S. 901, 85 S.Ct. 190, 13 L.Ed.2d 175 (1964).
We hold that the Bower patent is invalid for obviousness. Because we affirm the District Court's holding of invalidity for obviousness, we need not reach the second ground, Bower's false oath.
Under the license agreement, Royal licensed St. Regis to manufacture plastic tie strips using the Bower patent and Royal's know-how. In return, St. Regis agreed to pay Royal 10 per cent of net dollar sales in royalties.
The agreement provided...
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