Xerox Corporation v. Dennison Manufacturing Company

• Citation: 322 F. Supp. 963
• Decision Date: 08 January 1971
• Docket Number: No. 67 Civ. 3302.,67 Civ. 3302.
• Parties: XEROX CORPORATION, Plaintiff, v. DENNISON MANUFACTURING COMPANY and Dennison Copier Corporation, Defendants.
• Court: U.S. District Court — Southern District of New York

322 F. Supp. 963

XEROX CORPORATION, Plaintiff, v. DENNISON MANUFACTURING COMPANY and Dennison Copier Corporation, Defendants.

No. 67 Civ. 3302.

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

January 8, 1971.

Brumbaugh, Graves, Donohue & Raymond, New York City, for plaintiff; Mark N. Donohue, Francis J. Hone, New York City, of counsel.

McLean, Boustead & Sayre, New York City, for defendants; W. Brown Morton, Jr., J. Donald Tierney, New York City, of counsel.

MANSFIELD, District Judge.

In this suit for infringement of two United States patents assigned to and controlled by plaintiff, No. 3,121,006 ("006"), issued to Middleton and Reynolds, and No. 2,588,699 ("699"), issued to Carlson, defendants have moved pursuant to Rule 56, F.R.Civ.P., for partial summary judgment dismissing as a matter of law the claim based on the 006 patent. For the reasons stated below the motion is denied.

Both patents deal with the art of copying documents by means of electrophotography, or xerography, which is used as a basic principle in the copying machines, and paper used therewith, manufactured and sold by the parties in the ever-burgeoning office machine industry. The process utilizes a photoconductive insulating layer (which may be in the form of a coating on paper or on metal called a binder plate), that holds an electrostatic charge in darkness and dissipates or loses so much of the charge as is exposed to light. By charging the plate uniformly in darkness and then exposing it to the image of a document to be copied, a reproduction of the document can be obtained upon the surface of the plate. This result is produced through the dissipation of the electrostatic charge from those areas of the plate that are exposed to the light portions of the document to be copied, leaving on the plate an invisible electrostatic image of the dark lines or print to be reproduced. This invisible image is then developed through use of particles that are electrically attracted to the portions of the surface of the plate that remain charged and through application of heat.

It is immediately apparent that the substance used as the photoconductive insulating layer plays a critical part in the successful use of the process. Claims 1 and 14 of the 006 patent, granted on February 11, 1964, describe an electrophotographic copying process that would dominate the utilization of a layer consisting of zinc oxide coated on paper.¹ A certain pigment grade of zinc oxide (described in Example 70), which is apparently both efficient and economical for the purpose, is used by defendants with a photoconductive metallic ion-containing inorganic compound dispersed in an insulating organic resin binder. Although plaintiff owns the 006 patent, the machines currently marketed by it utilize a binder plate consisting of a selenium layer coated on a metal backing, from which the developed image is transferred to a paper sheet.

Defendants' answer charges that the 006 patent is invalid and unenforceable by reason of plaintiff's fraud, misstatements, and non-disclosure of material facts in connection with prosecution of the application for the patent before the Patent Office, as a result of which it is alleged that plaintiff comes into court with unclean hands.

For purposes of this motion defendants concede that since fraud (which they contend that they will prove at trial) requires clear, convincing and unequivocal proof of willfulness and intent on the part of plaintiff, Barr Rubber Products Co. v. Sun Rubber Co., 425 F. 2d 1114 (2d Cir. 1970); Scott Paper Co. v. Fort Howard Paper Co., 432 F.2d 1198 (7th Cir. 1970), and that since summary judgment may not be used to determine intent, Preston v. United States Trust Company of New York, 394 F.2d 456, 460 (2d Cir. 1968); Louis Schlesinger Company v. Kresge Foundation, 388 F.2d 208, 212 (3d Cir. 1968); see Poller v. CBS, 368 U.S. 464, 473, 82 S.Ct. 486, 7 L.Ed.2d 458 (1962), their defense of fraud presents at best a genuine issue as to plaintiff's state of mind, which bars summary judgment based upon fraud. However, invoking decisions more fully discussed below, defendants contend that they should be awarded summary judgment for the reason that because of plaintiff's conduct before the Patent Office the latter was denied the opportunity to exercise its administrative judgment with respect to material facts potentially determinative of patentability. To put it another way, defendants contend that whether or not there was a wrongful or fraudulent intent on the part of the prosecution of the 006 patent, plaintiff's conduct (misstatements, failure to disclose relevant facts, appropriation of disclosures made by others and presentation of a false oath) amounted to unclean hands as a matter of law.

Plaintiff denies any unfair conduct or misrepresentations on its part in the prosecution of the 006 patent and raises numerous issues of fact. More important for our purposes plaintiff disputes defendants' basic assumption that the doctrine of unclean hands may be invoked without proof of intentional misstatements or omissions of material or relevant facts. Before proceeding to this question, we turn to some of the undisputed background facts.

The art of electrophotography was pioneered by Chester Carlson in the late 1930's and early 1940's. In 1944 the Battelle Memorial Institute ("Battelle"), a research organization in Columbus, Ohio, agreed with Carlson to support further development work in its laboratory. In 1947 plaintiff's predecessor, Haloid, entered into an agreement with Battelle whereby plaintiff contributed to the research project and acquired commercial rights in the fruits of the research, including any inventions. The research work was furthered by the negotiation in 1948 of a contract with the U.S. Army Signal Corps to determine whether electrophotography was suitable for a particular type of Signal Corps high speed, continuous tone photography being developed. Thereafter Battelle and plaintiff investigated numerous substances for the purpose of determining whether they might, like the selenium, be suitable for use as a photoconductive insulating layer. Insofar as this research work was performed pursuant to the Signal Corps contract, some substances, while unsuitable for such use in connection with the Signal Corps continuous, rapid photography (which required a high speed, panchromatic subject matter), might still be useful for ordinary electrophotographic copying. (Some of the differences between the parties as to the interpretation of certain Battelle reports seem to arise out of this distinction in possible uses of the subject matter.)

In October 1948 Battelle and plaintiff put on a public demonstration of the electrophotography process in Detroit, Michigan. Thereafter RCA, which was also working on development of an electrophotographic copying process, gained access to reports of research done for the Signal Corps at Battelle on electrophotography. Later Greig, an RCA employee, was to claim as his invention the use of the zinc oxide photoconductor.

Middleton and Reynolds, the inventors named in the 006 patent, were employed by Battelle in its research on electrophotography, including the investigation of substances suitable for use as photoconductors. On May 25, 1949, a patent application (M-1) was filed by Middleton, which broadly claimed photoconductive insulators in a binder and recited a series of different substances, including zinc titanate, as possible insulators. On September 25, 1952, a patent application (M-2) was filed by Middleton and Reynolds, which eventually led to the issuance of the 006 patent. As originally drawn M-2 disclosed and claimed binder plates in which the photoconductive material would consist of an inorganic compound. A large number of different sulfides and selenides of cadmium and zinc, and of different phosphors, were described.

In the meantime, by May 1952, Greig of RCA had used a pigment grade of zinc oxide as a photoconductive material (plaintiff claims that Greig and his superior Young had obtained the idea of zinc oxide from their examination of the Seventh Quarterly Progress Report of work done at Battelle for the Signal Corps). In the same month RCA, which was seeking cross-licensing agreements from plaintiff, disclosed to plaintiff that RCA was working on a type of paper for use as a photoconductive insulator in its electrographic process and after a demonstration in December 1952, which was witnessed by plaintiff's representatives, RCA disclosed that the paper was coated by a pigment grade of zinc oxide. By August 1953, RCA delivered to plaintiff the formulation for the zinx oxide plate.

On November 6, 1953, plaintiff amended the M-2 application to claim generally the use of binder plates containing inorganic compounds and included specific reference to a zinc oxide coated plate as a photoconductor. There followed a prosecution by plaintiff of the M-2 application before the Patent Office, including the filing of a continuation-in-part (M-3) in 1954, which included numerous added examples, one of which, No. 70, described a plate using the same pigment grade of zinc oxide that had been used by Greig. After the Patent Examiner in 1957 rejected the application on the basis of Greig's earlier application filed on September 29, 1951, plaintiff filed an affidavit of its patent counsel, Simmons, swearing back of the Greig date on the basis of earlier work done on zinc oxide at Battelle. The M-3 application was rejected by the Patent Office but upon appeal the Court of Customs and Patent Appeals reversed the Patent Office and granted the 006 patent.

It is against the foregoing background that defendants' motion for summary judgment must be considered. Two basic grounds are asserted. The first is that plaintiff's conduct before the Patent Office, including alleged misstatements and non-disclosures of material and relevant facts, the appropriation of disclosures made...