Brasseler, U.S.A., I, L.P. v. Stryker Sales Corporation, et al.

Brasseler, U.S.A. I, L.P. (“Brasseler”) appeals from a grant of a motion for attorney fees by the United States District Court for the Southern District of Georgia awarding attorney fees in accordance with 35 U.S.C. § 285. Brasseler U.S.A. I, L.P. v. Stryker Sales Corp., 93 F. Supp. 2d 1255 (S.D. Ga. 1999) (“Brasseler III”). For the reasons discussed below, we affirm the judgment of the district court.

BACKGROUND

Brasseler markets medical instruments through an unincorporated division, Komet Medical. In May 1991, Alex Miller, Brasseler’s national sales director, contacted Robert L. Stranahan, the sole owner of DS Manufacturing (“DSM”), a saw blade manufacturer, to assist in the development of a new surgical saw blade. In exchange for his assistance, Brasseler promised to purchase the blades exclusively from DSM. Miller and Stranahan, with the assistance of an employee from each company, created a design for a surgical saw blade that later became known as the K-2000 blade. In accordance with their agreement, DSM was to manufacture the newly designed blades for sale to Brasseler. Brasseler would then mark, package and sterilize the blades for resale under an FDA license authorizing it to make such sales.

On April 13, 1992, DSM sold over 3,250 of the K-2000 blades to Brasseler for approximately $27,000.00. Twelve months later Brasseler instructed its attorney to prepare and file a patent application. On April 27, 1993, Christopher W. Brody, an associate with the law firm representing Brasseler, apparently was instructed by Robert L. Price, his supervising attorney, to prepare a patent application covering the K-2000 blade. Brody was instructed to file the application by April 30, 1993, to avoid “a potential on-sale bar of May, 1992.” During the two days Brody spent preparing the application he made no inquiry about the details of the sale. The application was filed on April 30, 1993, and issued on April 26, 1994, as U.S. Patent No. 5,306,285 (“the ’285 patent”). Neither Price nor Brody ever conducted an investigation into the facts surrounding the potential May on-sale bar, and Brody claimed not to have learned of the April 13, 1992 sale, or any event which might have given rise to the rushed filing, until the sale became an issue in the initial proceeding before the district court.

Brasseler filed suit against Stryker Corporation (“Stryker”) for infringement of the ’285 patent. Brasseler, U.S.A. I, L.P. v. Stryker Sales Corp., No. CV 497-184 (S.D. Ga. June 25, 1998) (memorandum order) (“Brasseler I”). Stryker raised an on-sale bar defense, claiming that the patent was invalid because the inventors sold the patented blades more than one year before Brasseler filed its patent application, in violation of 35 U.S.C. § 102(b). Brasseler insisted that no invalidating sale occurred, arguing that the blades were not within the scope of the claims because they required additional processing. Brasseler further argued that because the sale took place between companies owned by or employing the individual inventors, the sale did not qualify as one giving rise to a statutory on-sale bar.

The district court determined that the transaction constituted a sale in accordance with the statute and granted Stryker’s motion for summary judgment on this issue. This court affirmed that determination. Brasseler U.S.A. I, L.P. v. Stryker Sales Corp., 182 F.3d 888, 51 USPQ2d 1470 (Fed. Cir. 1999) (“Brasseler II”). In Brasseler II, although we noted that the Supreme Court had enunciated a new two part test for establishing criteria for determining whether an offer for sale or a sale will give rise to a statutory bar in Pfaff v. Wells Elecs., Inc., 525 U.S. 55 (1998), our holding did not turn on the new test. The determinative holding in Brasseler II was premised on the finding that there had been a sale between two unrelated corporate entities and the case did not involve a mere offer for sale. On appeal, Brasseler had requested the court to adopt a "joint development" exception to the on-sale bar rule, a proposition that this court had never before recognized. We rejected Brasseler’s argument that sales between joint inventors escape the reach of the on-sale bar because this court had previously recognized that a sale between separate and distinct legal entities qualifies as a sale under the statutory bar even where there is an overlap of ownership between the buyer and seller, citing In re Caveney, 761 F.2d 671, 676, 226 USPQ 1, 4 (Fed. Cir. 1985). See Brasseler II, 182 F.3d at 890, 51 USPQ2d at 1471. Thus, before the events that produced this litigation, patent lawyers knew that no "joint development" exception existed in the on-sale bar law. In Brasseler II, therefore, we concluded that the sale gave rise to a bar because it was a sale between two distinctly separate corporate entities with no common ownership or control. In that case, we also determined that the sale involved products embodying the claimed invention, finding that the processing step, alleged by Brasseler to distinguish the blades as sold from those claimed, was not a component of the claims. Id. at 891, 51 USPQ2d at 1473. In Brasseler II, we further noted that, “[b]y way of the sale to Brasseler, these inventors commercially exploited the invention prior to the critical date.” Id. at 891, 51 USPQ2d at 1472. The case was remanded to the district court for a determination of whether this was an exceptional case entitling Stryker to attorney fees in accordance with 35 U.S.C. § 285. Id. at 892, 51 USPQ2d at 1474.

On remand, Stryker argued before the district court that it was entitled to attorney fees because Brasseler had breached its duty of candor and disclosure to the Patent and Trademark Office (“PTO”) by: (1) unreasonably failing to investigate the sale of the invention; (2) applying for a patent without disclosing the “on-sale” facts; and (3) unjustifiably suing Stryker despite knowledge of the patent’s invalidity. Brasseler III, 93 F. Supp. 2d at 1257.

The district court noted that to prove inequitable conduct, in accordance with FMC Corp. v. Manitowoc Co., 835 F.2d 1411, 5 USPQ2d 1112 (Fed. Cir. 1987), one alleging “failure to disclose” type inequitable conduct must prove with sufficient clarity that: (1) information exists that is material; (2) the applicant or his or her attorney knew of this information and that it was material; and (3) the applicant or his or her attorney failed to disclose the information with the intent to mislead the PTO. Brasseler III, 93 F. Supp. 2d at 1259.

Focusing on the third element in the inequitable conduct analysis, the district court noted that the degree of intent to mislead necessary to trigger culpability varies in proportion to the materiality of the information. Id. Next, the district court noted that in Critikon, Inc. v. Becton Dickinson Vascular Access, Inc., 120 F.3d 1253, 43 USPQ2d 1666 (Fed. Cir. 1997), this circuit had emphasized that depending on the facts of each particular case, intent may be inferred where a patent applicant knew, or should have known, that withheld information could be material to the PTO’s consideration of the patent application. Brasseler III, 93 F. Supp. 2d at 1260. The district court noted that in Critikon, 120 F.3d at 1256-57, 43 USPQ2d at 1668-69, this court found a patentee’s failure to appreciate the legal significance of the facts that it failed to disclose did not absolve it of its duty to disclose. Brasseler III, 93 F. Supp. 2d at 1260. Accordingly, the district court concluded that Brasseler is charged with its attorney’s knowledge of the law. Id. At the same time, the district court noted that mere negligence, or even gross negligence, cannot lead to a finding of deceptive intent. Id. at 1258-59.

Reviewing the circumstances surrounding the sale and the prosecution of the application, the district court recognized that the failures were more than gross negligence holding that “[t]he ‘sum total of [Brasseler’s] conduct,’ demonstrates § 285-level intent to defraud the PTO.” Id. Based on the conduct of both the inventors and their representatives, the court deemed this case “exceptional,” entitling Stryker to attorney fees. Price and Brody had notice that a potential on-sale bar event had occurred, but did not know what the event was or the exact date the event took place. The court determined that, having received notice that a potential bar existed, Brasseler’s attorneys were obligated to conduct an investigation into the facts surrounding the sale and to disclose any information reasonably believed to be material. Id. at 1260-61. The court found Price and Brody’s failure to investigate, at any time prior to issuance of the patent, the potential bar of which they were aware and that had generated such concern amongst the inventors, constituted sufficient evidence of inequitable conduct.

Specifically, Brody testified that there was insufficient time for him to conduct an investigation into the facts surrounding the “potential bar” in the course of preparing the application. However, he did not conduct any investigation even after the application had been filed. He argued only that it was reasonable for him to assume that the invalidating event must have occurred some time in May 1992, because Price[1] advised him that he must file the patent application by April 30, 1993 to avoid “a potential on-sale bar of May, 1992.”

After hearing the evidence presented and drawing pertinent inferences from that evidence, the district court concluded that the alleged May 1992 on-sale bar date had no basis in fact and instead had been concocted by Price simply to set a deadline for Brody’s preparation of the application. The district court found that someone from Brasseler, or someone on its behalf, contacted Price to prepare the patent application. The district court also found that the April 13 sale was the event that prompted either Brasseler or the “someone” to contact Price, who “decided to get the patent application quickly filed and hope for the best. So, he simply gave Brody a deadline, and Brody evidently picked up on the problem, as evidenced by his studied refusal to make even the most basic inquiries….” Id. at 1263.

The sum of the evidence thus led the district court to conclude that both Price and Brody knew that prior to May 1992 there was a potential on-sale bar event that could prevent issuance of the patent, that Price created a fictitious on-sale deadline, and that the attorneys pursued a “studied refusal” to ascertain the precise on-sale bar date, even though the client had tipped them off to the existence of the problem.

In light of evidence suggesting that Price and Brody believed an invalidating event had occurred, and particularly the fact that at no time after filing did either attorney inquire as to the date or the event that so concerned the inventors, the district court rejected Brasseler’s argument that Price and Brody were excused from inquiring into the details of the event. The court found incredible Price and Brody’s failure to take “ten minutes to verify basic filing-deadline information.” Id. at 1261. The court was further influenced by Brasseler’s decision not to obtain any testimony from Price showing that he had a reasonable basis for failing to direct or make such an inquiry and its invocation of the attorney-client privilege to protect documents generated by Brody in the course of prosecuting the application. The court noted with great skepticism that Brasseler even failed to provide evidence explaining who at Brasseler contacted Price and what event prompted the rushed filing of the application. The court further noted that Brody was in direct contact with the inventors in the course of preparing the application, particularly while preparing the post-filing inventor’s declaration, yet he could not recall having discussed any potential bar events.

The district court found Brody’s responses lacking in candor, stating that in response to questions surrounding who instructed him to file the application, whether he knew what the event was that presumably gave rise to a bar, and why he did not know the date the event took place, “[h]e tiptoes around” the truth. Id. at 1262. The court concluded that Brody did not conduct a post-filing investigation because he was reluctant to learn the specific facts pertaining to earlier sales that he would have been obliged to disclose to the PTO. The court also found Brody’s refusal to do so underscored the “studied ignorance that he carefully cultivated” and with which he prosecuted the application. Id. at 1262-63. The court also referred to the “high-spun wordplay” Brody employed in the course of this litigation in an attempt to diminish the implications arising from his conduct. Id.

On the basis of the evasive testimony of Brody, the suspicious circumstances surrounding the rush filing of the application, the interactions between the inventors and their attorneys, and the absence of testimony from supervisory attorney Price to suggest that the failure to investigate the details surrounding the bar event was not committed in bad faith, the court concluded that the attorneys possessed the requisite intent to support a finding of inequitable conduct. The district court concluded that someone from Brasseler who knew of the April 13, 1992 sale, “sensing it was too late,” nevertheless contacted Price and instructed him to rush the filing of the application. Id. at 1261. Price “evidently decided to get the patent application quickly filed and hope for the best.” Id. at 1263. Price gave Brody a false deadline and, given the circumstances, “Brody evidently picked upon on the problem” yet failed to apprise himself of the specific details of the event which constituted an on-sale bar. Id. at 1261, 1263. Based on “patent counsel’s studied refusal to timely investigate” and failure to disclose information under a continuing duty, the district court determined that Brasseler had acted with deceptive intent. Id. at 1263-64.

The district court further found that the conduct of the inventors contributed to its determination that Brasseler had committed inequitable conduct. The court noted that Stranahan, a named inventor, had filed both an oath and a post-application inventor’s declaration, wherein he acknowledged being under a duty to disclose. The court further noted that the inventors, who also happened to be corporate executives of the companies and were therefore involved in the sale, had been in contact with counsel throughout prosecution. Thus, the court found Stranahan chargeable with knowledge of the sale and its materiality, and that under Critikon he had a duty to inform the PTO of the sale. The court held that, at a minimum, Stranahan should have informed his patent attorney of the sale. Id. at 1263. In addition, the court held that “inventors cannot ‘empty-head’ their own patent counsel, and patent counsel cannot shirk basic, § 102(b) factual inquiry requirements,” which arise at the time of filing and continue throughout the prosecution. Id. at 1264.

Brasseler unsuccessfully urged the district court to find that it did not possess the requisite intent to deceive because it reasonably believed that sales between joint inventors would not give rise to a bar and, therefore, reasonably believed this sale was not material. The district court rejected that argument, finding that under the precedent of this court the transaction was a commercial sale requiring disclosure and that no joint venture exception to the on-sale bar rule existed.

Brasseler further argued that an award of attorney fees is not justified in this case because its decision not to disclose the sale was a reasonable interpretation of the applicable law in existence at the time the application was filed. Specifically, Brasseler points to the fact that the Federal Circuit’s on-sale bar determination in Brasseler II was based on the recently issued decision in Pfaff v. Wells Elecs., Inc., 525 U.S. 55 (1998), in which the Supreme Court resolved the confusion surrounding the application of the “totality of the circumstances” test for determining whether a transaction would give rise to a bar and replaced that test with a new two part analysis. Alternatively, Brasseler argued that under the “totality of the circumstances” test it reasonably believed it was not required to disclose the sale to the PTO. Rejecting both contentions, the district court concluded that the high materiality of the sale was readily apparent under either standard.

The district court further refused to limit its award of fees to those Stryker incurred in raising the on-sale bar defense. Indeed, the district court noted that Brasseler did not show that Stryker’s alternative defenses were legally frivolous. Thus, the court determined that Stryker should recover expenses incurred in the course of developing these alternative defenses.

The district court entered judgment granting Stryker’s motion for an award of attorney fees in the amount requested by Stryker. Brasseler III, 93 F. Supp. 2d at 1265. Brasseler appeals that decision. We have jurisdiction over this appeal pursuant to 28 U.S.C. § 1295(a)(1)(1994).

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Inequitable conduct is an equitable issue committed to the discretion of the trial court and is, therefore, reviewed by this court under an abuse of discretion standard. Kingsdown Med. Consultants, Ltd. v. Hollister, Inc., 863 F.2d 867, 876, 9 USPQ2d 1384, 1392 (Fed. Cir. 1988) (en banc in relevant part). We will not substitute our judgment for that of the trial court in relation to the discretionary ruling of inequitable conduct unless the appellant establishes that the ruling is based upon clearly erroneous findings of fact or a misapplication or misinterpretation of applicable law or that the ruling evidences a clear error of judgment on the part of the district court. Id.

Determination of inequitable conduct, for establishing that a patent is unenforceable, requires a two-step analysis. First, the trial court must determine whether the withheld information meets a threshold level of materiality. Halliburton Co. v. Schlumberger Tech. Corp., 925 F.2d 1435, 1439, 17 USPQ2d 1834, 1838 (Fed. Cir. 1991). Second, the district court must then also determine whether the evidence shows a threshold level of intent to mislead the PTO. Id. Except when reviewed on grant or denial of a motion for summary judgment of unenforceability of the disputed patent or patents, these factual determinations are generally reviewed by this court under the clearly erroneous standard of review. Kingsdown, 863 F.2d at 876, 9 USPQ2d at 1392 (en banc in relevant part). We review the district court’s ultimate determination of inequitable conduct under an abuse of discretion standard. Baxter Int'l, Inc. v. McGaw, Inc., 149 F.3d 1321, 1327, 47 USPQ2d 1225, 1228-29 (Fed. Cir. 1998); Kolmes v. World Fibers Corp., 107 F.3d 1534, 1541, 41 USPQ2d 1829, 1834 (Fed. Cir. 1997).

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A district court may award reasonable attorney fees to the prevailing party in a patent infringement case where the conduct of a party is deemed to be “exceptional.” 35 U.S.C. § 285. Exceptional cases are normally those involving bad faith litigation or those involving inequitable conduct by the patentee in procuring the patent. Cambridge Prods. Ltd. v. Penn Nutrients Inc., 962 F.2d 1048, 1050-51, 22 USPQ2d 1577, 1579-80 (Fed. Cir. 1992). The prevailing party may prove the existence of an exceptional case by showing: inequitable conduct before the PTO; litigation misconduct; vexatious, unjustified, and otherwise bad faith litigation; a frivolous suit or willful infringement. Hoffmann-La Roche Inc. v. Invamed Inc., 213 F.3d 1359, 1365, 54 USPQ2d 1846, 1850 (Fed. Cir. 2000). Litigation misconduct and unprofessional behavior are relevant to the award of attorney fees, and may suffice, by themselves, to make a case exceptional. Sensonics, Inc. v. Aerosonic Corp., 81 F.3d 1566, 1574, 38 USPQ2d 1551, 1557-58 (Fed. Cir. 1996).

As previously noted, to reach a finding of inequitable conduct, the district court must determine that information known to the inventors or their representatives was both material and intentionally withheld. FMC Corp. v. Manitowoc Co., 835 F.2d at 1415, 5 USPQ2d at 1116 (Fed. Cir. 1987). Information is deemed material if there is a substantial likelihood that a reasonable examiner would consider it important in deciding whether to allow the application to issue as a patent. J.P. Stevens & Co. v. Lex Tex Ltd., 747 F.2d 1553, 1559, 223 USPQ 1089, 1092 (Fed. Cir. 1984). To avoid a finding of inequitable conduct, doubts concerning whether information is material should be resolved in favor of disclosure. Critikon, 120 F.3d at 1257, 43 USPQ2d at 1669. Where an applicant knows of information the materiality of which may so readily be determined, he or she cannot intentionally avoid learning of its materiality, even through gross negligence; in such cases the district court may find that the applicant should have known of the materiality of the information. Id.; Nordberg, Inc. v. Telsmith, Inc., 82 F.3d 394, 397, 38 USPQ2d 1593, 1595 (Fed. Cir. 1996) (quoting FMC Corp. v. Manitowoc Co., 835 F.2d at 1415, 5 USPQ2d at 1116).

Typically, a finding of inequitable conduct hinges on whether the evidence as a whole indicates that patentees or their representatives acted with the intent to deceive. See, e.g., Symbol Techs., Inc. v. Opticon, Inc., 935 F.2d 1569, 1582, 19 USPQ2d 1241, 1250 (Fed. Cir. 1991). When balanced against high materiality, the showing of intent can be proportionally less. N.V. Akzo v. E.I. DuPont de Nemours, 810 F.2d 1148, 1153, 1 USPQ2d 1704, 1708 (Fed. Cir. 1987). In Monon Corp. v. Stoughton Trailers Inc., 239 F.3d 1253, 57 USPQ2d 1699 (Fed. Cir. 2001), we recently reiterated that a district court’s credibility determinations on intent to deceive the PTO “can virtually never be clear error.” Id. at 1263-64, 57 USPQ2d at 1707.

The district court determined that the inventors and their representatives were sufficiently aware of the existence of the sale, knew or should have known that the transaction was material, and intentionally withheld that information from the PTO on the basis that it might act as a bar. Brasseler challenges only the underlying factual basis for the court’s determination that this is an “exceptional case,” the district court’s finding of materiality and intent. Thus, our analysis is limited to a review of those two issues.

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