Taltech Ltd. v. Esquel Enterprises Ltd.

• Decision Date: 08 April 2009
• Docket Number: No. C04-974Z.,C04-974Z.
• Citation: 609 F.Supp.2d 1195
• Parties: TALTECH LIMITED, Plaintiff, v. ESQUEL ENTERPRISES LTD., Defendant.
• Court: U.S. District Court — Western District of Washington

Page 1195

609 F.Supp.2d 1195

TALTECH LIMITED, Plaintiff, v. ESQUEL ENTERPRISES LTD., Defendant.

No. C04-974Z.

United States District Court, W.D. Washington, at Seattle.

April 8, 2009.

COPYRIGHT MATERIAL OMITTED

Brian G. Bodine, Kaustuv Mukul Das, Merchant & Gould, Seattle, WA, Charles D. Reed, Joel Davidow, Kile Goekjian Reed & McManus, Washington, DC, Duane H. Mathiowetz, Farah Anthony, Henry C. Bunsow, Howrey, San Francisco, CA, for Plaintiff.

Ada Ko, Paul Douglas Swanson, Lane Powell PC, Seattle, WA, Gary J. Rinkerman, Jeffrey G. Killian, Ronald L. Grudziecki, Drinker Biddle & Reath, Washington, DC, for Defendant.

ORDER

THOMAS S. ZILLY, District Judge.

THIS MATTER comes before the Court on remand from the United States Court of Appeals for the Federal Circuit to reconsider an award of attorney fees in favor of defendants and against plaintiffs pursuant to 35 U.S.C. § 285, which provides that the Court "in exceptional cases may award reasonable attorney fees to the prevailing party." In concluding, for purposes of granting such fees, that this case is "exceptional" within the meaning of § 285, the Court relied on the following findings: (i) in prosecuting the application that ripened into United States Patent No. 5,568,779 ("the '779 Patent")¹, the inventor engaged in inequitable conduct by failing to disclose to the United States Patent and Trademark Office ("PTO") prior art of which he was aware; (ii) the inventor also engaged in inequitable conduct by making misrepresentations to the PTO with the intent to deceive the patent examiner; and (iii) during the course of this litigation, plaintiffs engaged in abusive and bad faith tactics. See Findings of Fact and Conclusions of Law at 59-71 (docket no. 301).²

On appeal, as to the issue of inequitable conduct, plaintiffs argued that the undisclosed prior art, namely a seam used in raincoats manufactured by plaintiff TAL Apparel Limited (the "Undisclosed Raincoat Seam"), was cumulative of a certain patent disclosed to the PTO, specifically German Patent No. 1 104 802 (the "Robers Patent"). The inventor named in the '779 Patent, John Wong, was aware of the Undisclosed Raincoat Seam prior to filing his patent application in May 1994. See Finding No. 114 (docket no. 301). During his deposition in May 2006, Mr. Wong drew the Undisclosed Raincoat Seam as follows:

NOTE: OPINION CONTAINING TABLE OR OTHER DATA THAT IS NOT VIEWABLE

See Finding No. 112 (docket no. 301). As indicated in the diagram, the Undisclosed Raincoat Seam is comprised of two garment components, fusible tape, a set stitch, and a top stitch.

The Robers Patent describes four embodiments, the first of which is illustrated in three phases as follows:

NOTE: OPINION CONTAINING TABLE OR OTHER DATA THAT IS NOT VIEWABLE

Plaintiffs' Tr. Exh. 3 at 107 (reproduced in Exh. D to Brief on Remand (docket no. 356-5 at 6)); see also Defendants' Tr. Exh. 503 at L007524. These figures from the Robers Patent depict the sequence of stitching and folding used to produce the embodiment. The thickest line [1] represents a diagonally cut strip coated with a thermoplastic substance [1a], the short broken or dashed line [4] is a "first seam," and the long broken or dashed line [5] is a "second seam," which penetrates all of the layers. Plaintiffs' Tr. Exh. 3 at 112-13; Defendants' Tr. Exh. 503 at L007517. The second embodiment in the Robers Patent is likewise shown in stages:

NOTE: OPINION CONTAINING TABLE OR OTHER DATA THAT IS NOT VIEWABLE

Plaintiffs' Tr. Exh. 3 at 107; see also Defendants' Tr. Exh. 503 at L007524. In these figures, the short broken or dashed line [8] is a "first seam," and the long broken or dashed line [10] is a "second seam," which penetrates all of the layers. Plaintiffs' Tr. Exh. 3 at 113; Defendants' Tr. Exh. 503 at L007517-18. The remaining embodiments in the Robers Patent have little or no relevance in this case. The Federal Circuit was unable to "discern from the record" whether the Robers Patent was "merely cumulative" of the Undisclosed Raincoat Seam; it therefore vacated the determination of inequitable conduct and the award of attorney fees, and remanded the matter to this Court. TALtech Ltd. v. Esquel Apparel, Inc., 279 Fed. Appx. 974, 976-77 (Fed.Cir.2008).

A. Scope of Authority on Remand

Before addressing the merits of the pending issues, the Court must first resolve the parties' dispute concerning the scope of the Court's authority on remand. Without much analysis or authority, plaintiffs assert that this Court is limited to a consideration of only whether the Undisclosed Raincoat Seam is cumulative of the Robers Patent. See Reply at 2-3 (docket no. 361). In contrast, defendants argue that the Court may reinstate the award of attorney fees regardless of whether the undisclosed prior art is material because the two other bases for finding the case "exceptional" constitute sufficient support for the Court's earlier decision. See Brief at 3, 15-19 (docket no. 358).

In patent cases, the precedent of the regional circuit, rather than of the Federal Circuit, governs the manner in which a mandate is interpreted because the issue involves "a procedural matter not unique to patent law." See Exxon Corp. v. United States, 931 F.2d 874, 877 n. 4 (Fed. Cir.1991) (citing Jamesbury Corp. v. Litton Indus. Prod., Inc., 839 F.2d 1544, 1550 n. 20 (Fed.Cir.1988)). The applicable standard is sometimes called the "mandate rule" and, at other times, the "law of the case doctrine." See United States v. Thrasher, 483 F.3d 977, 982 (9th Cir.2007) (noting that courts "have not been consistent in describing the mandate doctrine," with some circuits considering the "mandate doctrine as `nothing more than a specific application of the `law of the case' doctrine'"). Although the circuits are split on the question, in the Ninth Circuit, the mandate rule is jurisdictional, implicating the "power," not just the preferred or common practice, of the district courts. Id. (distinguishing Castro v. United States, 540 U.S. 375, 384, 124 S.Ct. 786, 157 L.Ed.2d 778 (2003)).

The mandate rule precludes a lower court from reconsidering an issue previously decided by a higher court in the same case,³ but it applies only to issues "decided explicitly or by necessary implication" by the appellate court. Milgard Tempering, Inc. v. Selas Corp. of Am., 902 F.2d 703, 715 (9th Cir.1990); see also Liberty Mut. Ins. Co. v. Equal Employment Opportunity Comm'n, 691 F.2d 438, 441 (9th Cir.1982) ("Lower courts are free to decide issues on remand so long as they were not decided on a prior appeal.").⁴ In contending that the scope of this Court's authority on remand is limited, plaintiffs rely on the following language of the Federal Circuit's opinion in this matter:

Therefore, we vacate the determination of inequitable conduct and remand the case to the district court to determine whether Robers was, as TAL suggests, merely cumulative to the undisclosed raincoat seam, thus negating inequitable conduct.

279 Fed.Appx. at 977 (emphasis added). This sentence and the highlighted clause therein must be read in context. In the first sentence of the previous paragraph, the Federal Circuit focused its analysis on one of the two bases for finding inequitable conduct, stating that "the district court found TAL liable for inequitable conduct because inventor John Wong had not disclosed the raincoat seam that inspired his invention to the PTO." Id. at 977. Between that introductory sentence and the language cited by plaintiffs, no mention is made of the other basis for finding inequitable conduct, namely material misrepresentations made with the intent to deceive the patent examiner, or of the additional ground for finding the case exceptional, namely abusive litigation tactics. Moreover, in the sentence directly following the one on which plaintiffs rely, the Federal Circuit made clear that it understood this Court based its "exceptional case" finding on more than the failure to disclose prior art: "We also vacate the order of attorney fees under 35 U.S.C. § 285 because the district court based its conclusion that this was an exceptional case at least in part upon its finding of inequitable conduct." Id. at 977 (emphasis added). Thus, the earlier language quoted by plaintiffs does not have the restrictive meaning that they ascribe to it.

Moreover, the case on which plaintiffs rely, Laitram Corp. v. NEC Corp., 115 F.3d 947 (Fed.Cir.1997), does not advance their position. Rather, the Laitram opinion supports a broader view of this Court's authority on remand than plaintiffs have proposed.⁵ As in Laitram, this case involves three separate grounds for relief, and as in Laitram, in this case, the Federal Circuit explicitly addressed only one of the three independent bases for decision. The Federal Circuit did not expressly or by "necessary implication" confine the remand in this case to simply whether the Undisclosed Raincoat Seam is cumulative of the Robers Patent, and the Court is free to consider whether the other grounds for finding this case "exceptional" are themselves sufficient to justify the award of attorney fees.

B. Undisclosed Raincoat Seam Versus Robers Patent⁶

The Court begins with an analysis of whether the Undisclosed Raincoat Seam is cumulative of the Robers Patent. The starting point for this discussion is the three-part process for evaluating whether a patent should be invalidated due to inequitable conduct before the PTO. The first stage requires the Court to assess whether undisclosed references satisfy a threshold level of materiality. Halliburton Co. v. Schlumberger Tech. Corp., 925 F.2d 1435, 1439 (Fed.Cir.1991). The second prong involves a determination whether a threshold showing has been made of the applicant's intent to mislead or deceive the PTO. Id. The thresholds of materiality and intent must be proven by clear and convincing evidence. Star Scientific, Inc. v. R.J. Reynolds Tobacco Co., 537 F.3d 1357, 1365 (Fed...