Molins PLC v. Textron, 48 F.3d 1172, 33 U.S.P.Q.2d (BNA) 1823 (Fed. Cir. 1995)
OPINIONBY: LOURIE
LOURIE, Circuit Judge.
Molins PLC and John Coventry Smith, Jr. appeal from a judgment of the United States District
Court for the District of Delaware holding U.S. Patents 4,369,563 and 4,621,410 unenforceable
due to inequitable conduct and awarding attorney fees, costs, and expenses against Molins and
Smith, jointly and severally. Molins PLC v. Textron, Inc., Civ. Nos. 86-446-JJF, 87-275-JJF, and
87-163-JJF (D. Del. Feb. 1, 1994) (amended final judgment). n1 We affirm-in-part, vacate-in-
part, and remand.
BACKGROUND
Molins is a United Kingdom limited liability corporation, having its principal office at Milton
Keynes, England. Between 1963 and 1973, Molins operated a machine tool division for the
design, manufacture, and sale of machine tools used in the high speed machining of light alloys.
In 1965, Molins' Research Director, Dr. David Williamson, developed a method
for improving batch machining involving a plurality of machine tools arranged to
accommodate the manual transport of pallet-mounted workpieces to and from the
machine tools (the "batch process"). Molins filed a British patent application for
the batch process in the fall of 1965 and filed counterpart applications in a number
of countries, including the United States.
In 1966, Williamson invented a fully automated machining system that allows several related
families of parts to be machined simultaneously (the "system 24"). Molins filed patent
applications for the system 24 in the United Kingdom, the United States, and in other countries
during 1966-67. In 1967, the U.S. batch process application was combined with the U.S. system
24 application in a continuation-in-part. The '563 patent later matured from a continuation-in-
part of the combined U.S. application. n2 Before the patent issued in January of 1983, however,
the batch process claims were cancelled and only claims drawn to the system 24 apparatus
issued. The '410 patent issued from a divisional application and is directed to the system 24
method of machining.
n2 The '563 patent issued on January 25, 1983. It matured from the following series of
applications: Serial No. 85,289, filed October 29, 1970, which is a continuation-in-part of
Serial No. 695,817, filed December 4, 1967, which is a continuation-in-part of Serial No.
578,318, filed September 9, 1966 and Serial No. 636,993, filed May 8, 1967. The '410 patent
issued on November 11, 1986 and is a division of Serial No. 85,289. Throughout the
prosecution of the series of patent applications that ultimately issued as the patents in suit,
foreign priority was claimed under 35 U.S.C. § 119 from the United Kingdom patent
applications filed during the years 1965-1967.
The '563 patent discloses a system of complementary, numerically-controlled
machine tools. Materials to be machined, or "workpieces," are subjected to selected
machining operations on selected machine tools in a selected order by the delivery
of common form pallets loaded with the workpieces. Transporters deliver pallets
between the machine tools, a storage rack, and work stations where the workpieces
are automatically delivered in bins from a bin store and are loaded on the pallets.
Tool magazines are delivered between a rack and the machine tools by a
transporter. A computer controls transport and machining operations, and receives
signals from monitors indicating the location of pallets, tool magazines, and bins.
Dennis Whitson began working for Molins in 1967 as one of several British chartered patent
agents working in Molins' in-house patent department. He managed Molins' patent department
from 1974 through 1981 and was responsible for the prosecution of all of Molins' patent
applications directed to the batch process and system 24 inventions. When Whitson retired in
1981, Ivan Hirsh, employed by Molins since 1968, assumed the responsibilities as manager of
Molins' patent department. After becoming manager, Hirsh assumed responsibility for
prosecuting the applications relating to the patents in suit and for conducting the litigation
involving Molins' patents.
Smith served as the primary United States counsel to Molins, representing Molins at the United
States Patent and Trademark Office ("PTO") from 1966 through the relevant time period in this
case. n3 Beginning in 1967, Smith prosecuted the patent applications leading to the issuance of
the '563 and '410 patents. In January of 1980, Molins assigned a one-half interest in the patent
applications to Smith in exchange for Smith's agreement to undertake further prosecution at his
own expense. In July of 1988, Smith reassigned his interest in the patents to Molins. Smith
remained entitled to one-half of all royalty income received by Molins from licenses under the
patents entered into prior to July 1, 1988.
n3 Smith was a member of the law firm Watson, Cole, Grindle and Watson, but left the firm,
taking several Molins matters with him, including the Williamson applications that
subsequently issued as the '563 and '410 patents.
Between the fall of 1967 and April 1968, while the relevant U.S. patent applications were
pending, Molins' patent department, and specifically Whitson, became aware of prior art referred
to here as the "Wagenseil reference." n4 Upon evaluating the Wagenseil reference, Whitson
concluded that it fully anticipated the "batch process" claims that Molins initially filed in the
United Kingdom and in many other countries including the United States. Accordingly, in 1968
and 1969, Whitson abandoned all the foreign patent applications to the batch process. However,
Whitson decided not to abandon the pending U.S. application because it contained both batch
process and system 24 claims.
n4 By "Wagenseil reference" or "Wagenseil," we refer to one or more of several articles,
written by William Wagenseil et al., published between 1958 and 1962, which, for purposes
of this case, disclose the same relevant subject matter. The articles disclose an automatic
manufacturing system used to make a number of parts using a delivery system under the
direction of a central control.
Prosecution of the U.S. and foreign system 24 applications continued. Wagenseil was cited to
and by several foreign patent offices, but was not cited by Molins to the PTO. In 1975, Whitson
told Smith that there were oppositions to the German system 24 patent application, but he did not
inform Smith of the art cited in Germany, which included the Wagenseil reference. Eventually,
Molins abandoned all foreign system 24 applications. In the United States, the '563 patent issued
in January of 1983, after Molins prevailed in an interference with two other parties.
Later in 1983, Hirsh reviewed the files of the foreign system 24 applications, all of which had
been abandoned in the late 1970s. Hirsh found the references that had been cited in the foreign
patent prosecution, but not the PTO, including the Wagenseil reference. Hirsh also found
Whitson's correspondence relating to the references and to their citation to and by foreign patent
offices. Hirsh then informed Smith of the foreign citations. Together, they consulted with outside
counsel and, on September 21, 1984, although the '563 patent had already issued, filed a lengthy
prior art statement under 37 C.F.R. § 1.501 (Rule 501) on behalf of Molins, listing the Wagenseil
reference together with all other prior art references that had been cited during the foreign
prosecution.
In October of 1984, Cross & Trecker, Incorporated, the parent corporation of defendant Kearney
& Trecker Corporation, filed a request for reexamination of the '563 patent in view of several
IBM references. Cross & Trecker filed a Form PTO-1449 listing Wagenseil, which was initialed
by the examiner as having been considered in June of 1985. During the reexamination, Molins
referred the examiner to the Rule 501 prior art statement previously filed in the '563 patent file.
The examiner indicated that, in order to make the prior art of record, Molins was required to
submit English language translations of the foreign language references. Accordingly, Molins
filed the translations and a brief statement of the relevance of the cited art. The examiner
initialed each reference Molins had listed, indicating that he had considered it. The examiner's
final office action in the reexamination stated that he had considered all of the cited references.
No claims were rejected based on Wagenseil during the reexamination. Re-Examination
Certificate B1 4,369,563 was issued on May 13, 1986.
Late in 1986, Molins and Smith filed suit against Textron, Incorporated, Kearney & Trecker,
and Avco Corporation (collectively "Textron"), n5 alleging infringement of the '563 and '410
patents. In February of 1989, after approximately three years of discovery, Textron filed a
summary judgment motion asserting that the patents were unenforceable due to inequitable
conduct in connection with the prosecution of the '563 patent, in particular, concealment of
Wagenseil and other information from the PTO. The motion was denied. After more discovery,
in June of 1990, Textron again moved for summary judgment, adding new allegations of
inequitable conduct relating to Smith's failure to disclose to the PTO allegedly material
information regarding a copending patent application in the name of Jerome Lemelson, whom
Smith also represented. Again, the court denied summary judgment. The court severed the issue
of inequitable conduct, and held a bench trial.
n5 Molins also sued Cincinnati Milacron, Incorporated and several West German companies.
Cincinnati Milacron settled after trial and was dismissed from the case. The German
companies voluntarily dismissed their appeal here.
On November 24, 1992, the court held that both patents were unenforceable due to inequitable
conduct. See supra note 1. The court found the case to be "exceptional" within the meaning of 35
U.S.C. § 285 and ordered further briefing on whether attorney fees should be awarded. On
December 30, 1993, the court held Molins and Smith jointly and severally liable for all the
defendants' attorney fees, costs, and expenses. Id. An amended final judgment was issued,
deferring the calculation of fees until after the disposition of Molins' and Smith's present appeals
from that judgment.
DISCUSSION
A. Inequitable Conduct
Applicants n6 for patents are required to prosecute patent applications in the PTO with candor,
good faith, and honesty. See Precision Instrument Mfg. Co. v. Automotive Maintenance Mach.
Co., 324 U.S. 806, 818, 89 L. Ed. 1381, 65 S. Ct. 993 (1945). This duty extends also to the
applicant's representatives. See FMC Corp. v. Manitowoc Co., 835 F.2d 1411, 1415 n.8, 5
U.S.P.Q.2D (BNA) 1112, 1115 n.8 (Fed. Cir. 1987) (the knowledge and actions of an applicant's
representative are chargeable to the applicant). A breach of this duty constitutes inequitable
conduct.
n6 Under PTO rules, the duty to disclose information material to patentability rests on the
inventor, on each attorney or agent who prepares or prosecutes an application and on every
other individual who is substantively involved in the preparation or prosecution of the
application and who is associated with the inventor, with the assignee, or with anyone to
whom there is an obligation to assign the application. See 37 C.F.R. § 1.56 (1983). For
convenience, we simply refer to "applicant" in this opinion.
Inequitable conduct includes affirmative misrepresentation of a material fact, failure to disclose
material information, or submission of false material information, coupled with an intent to
deceive. See J.P. Stevens & Co. v. Lex Tex, Ltd., 747 F.2d 1553, 1559, 223 U.S.P.Q. (BNA)
1089, 1092 (Fed. Cir. 1984), cert. denied, 474 U.S. 822 (1985). n7 One who alleges inequitable
conduct arising from a failure to disclose prior art must offer clear and convincing proof of the
materiality of the prior art, knowledge chargeable to the applicant of that prior art and of its
materiality, and the applicant's failure to disclose the prior art, coupled with an intent to mislead
the PTO. FMC, 835 F.2d at 1415, 5 U.S.P.Q.2D (BNA) at 1115.
n7 The standard of proper conduct in the PTO as summarized in J.P. Stevens was applicable
as early as 1973-74, see Manville Sales Corp. v. Paramount Sys., Inc., 917 F.2d 544, 551-52,
16 U.S.P.Q.2D (BNA) 1587, 1593 (Fed. Cir. 1990), which includes a significant portion of
the time period during which the patent applications leading to the '563 patent were pending.
The withholding of information must meet thresholds of both materiality and intent. Allen
Organ Co. v. Kimball Int'l, Inc., 839 F.2d 1556, 1567, 5 U.S.P.Q.2D (BNA) 1769, 1778 (Fed.
Cir.) ("Materiality does not presume intent, which is a separate and essential component of
inequitable conduct."), cert. denied, 488 U.S. 850 (1988). Once threshold findings of materiality
and intent are established, the court must weigh them to determine whether the equities warrant a
conclusion that inequitable conduct occurred. J.P. Stevens, 747 F.2d at 1559-60, 223 U.S.P.Q.
(BNA) at 1092. In light of all the circumstances, an equitable judgment must be made concerning
whether the applicant's conduct is so culpable that the patent should not be enforced. LaBounty
Mfg., Inc. v. International Trade Comm'n, 958 F.2d 1066, 1070, 22 U.S.P.Q.2D (BNA) 1025,
1028 (Fed. Cir. 1992).
The ultimate determination of inequitable conduct is committed to the trial judge's discretion
and is reviewed by this court under an abuse of discretion standard. Kingsdown Medical
Consultants, Ltd. v. Hollister, Inc., 863 F.2d 867, 876, 9 U.S.P.Q.2D (BNA) 1384, 1392, (Fed.
Cir. 1988), cert. denied, 490 U.S. 1067 (1989). To overturn such a determination, the appellant
must establish that the ruling is based on clearly erroneous findings of fact or on a misapplication
or misinterpretation of applicable law, or evidences a clear error of judgment on the part of the
district court. Id. Findings of materiality and intent are subject to the clearly erroneous standard
of Federal Rule of Civil Procedure 52(a) and will not be disturbed on appeal unless this court has
a definite and firm conviction that a mistake has been committed. Id. at 872, 9 U.S.P.Q.2D
(BNA) at 1389.
1. Whitson's Nondisclosure of Wagenseil During Original Prosecution
Calling this case "the exceptional case among exceptional cases," the district court concluded
that Whitson, Molins' in-house patent agent, had engaged in inequitable conduct in the
procurement of the '563 patent because he failed to disclose Wagenseil to the PTO, even though
he knew it was highly material. The court stated that "although [Textron has] not produced direct
evidence of Whitson's intent to deceive, i.e. there are no 'smoking memos' implicating bad faith
on the part of Whitson, the overwhelming circumstantial evidence presented in this case leaves
little doubt that Whitson intentionally concealed the Wagenseil reference from the U.S. PTO
knowing that it was highly material to the U.S. applications."
Although Molins concedes that Wagenseil is highly material to the batch process invention,
Molins asserts that the court erred in finding that Wagenseil was material to the '563 patent
claims, which relate only to the system 24 invention. Molins points out that, although Wagenseil
was cited to and considered by the examiner during reexamination of the '563 patent and during
examination of the divisional '410 patent, Wagenseil was not relied upon by the examiner to
reject pending claims. According to Molins, Wagenseil was ipso facto not material.
Information is "material" when there is a substantial likelihood that a reasonable examiner
would have considered the information important in deciding whether to allow the application to
issue as a patent. In re Jerabek, 789 F.2d 886, 890, 229 U.S.P.Q. (BNA) 530, 533 (Fed. Cir.
1986). n8 If the information allegedly withheld is not as pertinent as that considered by the
examiner, or is merely cumulative to that considered by the examiner, such information is not
material. See Scripps Clinic & Research Found. v. Genentech, Inc., 927 F.2d 1565, 1582, 18
U.S.P.Q.2D (BNA) 1001, 1014-15 (Fed. Cir. 1991).
n8 The duty to disclose information material to patentability has been codified in 37 C.F.R. §
1.56 (Rule 56), which was promulgated pursuant to 35 U.S.C. §§ 6 and 131. From 1977 to
1992, Rule 56 defined information as "material" when "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." We have adopted this standard as the threshold standard of materiality.
See LaBounty Mfg., Inc. v. United States Int'l Trade Comm'n, 958 F.2d 1066, 1074, 22
U.S.P.Q.2D (BNA) 1025, 1031 (Fed. Cir. 1992). In 1992, the PTO changed Rule 56 to
provide that
information is material to patentability when it is not cumulative to information already of
record or being made of record in the application, and (1) It establishes, by itself or in
combination with other information, a prima facie case of unpatentability of a claim; or (2) It
refutes, or is inconsistent with, a position the applicant takes in: (i) Opposing an argument of
unpatentability relied on by the Office, or (ii) Asserting an argument of patentability.
37 C.F.R. § 1.56 (1992). "Administrative rules will not be construed to have retroactive
effect unless their language requires this result." Bowen v. Georgetown Univ. Hosp., 488 U.S.
204, 208, 102 L. Ed. 2d 493, 109 S. Ct. 468 (1988); see also 57 Fed. Reg. 2021 (Jan. 17,
1992) (PTO notice of final rulemaking stating that new Rule 56 will be applicable to all
applicants and reexamination proceedings pending or filed after March 16, 1992). We thus
make no comment regarding the meaning of new Rule 56.
We have held that the result of a PTO proceeding that assesses patentability in light of
information not originally disclosed can be of strong probative value in determining whether the
undisclosed information was material. See J.P. Stevens, 747 F.2d at 1562, 223 U.S.P.Q. (BNA)
at 1094 (reasonable rejection of claims in reliance on a reference during reissue proceeding
established materiality of that reference). However, the standard to be applied in determining
whether a reference is "material" is not whether the particular examiner of the application at
issue considered the reference to be important; rather, it is that of a "reasonable examiner."
Western Electric Co. v. Piezo Tech., Inc., 860 F.2d 428, 433, 8 U.S.P.Q.2D (BNA) 1853, 1857
(Fed. Cir. 1988). Nor is a reference immaterial simply because the claims are eventually deemed
by an examiner to be patentable thereover. Merck & Co. v. Danbury Pharmacal, Inc., 873 F.2d
1418, 1421, 10 U.S.P.Q.2D (BNA) 1682, 1686 (Fed. Cir. 1989) ("That the claimed invention
may have been superior . . . to both the cited and withheld prior art may be a basis for
patentability; it cannot serve automatically to render the withheld prior art either cumulative or
immaterial."); A.B. Dick Co. v. Burroughs Corp., 798 F.2d 1392, 1396, 230 U.S.P.Q. (BNA)
849, 854 (Fed. Cir. 1986) (that the claims may be patentable over the withheld prior art is not the
test for materiality). Thus, the fact that the examiner did not rely on Wagenseil to reject the
claims under reexamination or the '410 method claims is not conclusive concerning whether the
reference was material.
The court found that Wagenseil was material because, among other things, it showed a storage
and retrieval system in combination with a transfer system, a combination for which the
examiner had relied upon two, separate references to reject the '563 patent application claims.
See In re Jerabek, 789 F.2d at 890, 229 U.S.P.Q. (BNA) at 533 (withheld reference was highly
material when no single piece of cited prior art taught the combination present in the reference).
Moreover, the court found that Wagenseil disclosed relevant features beyond that shown in the
prior art; in particular, Wagenseil disclosed a capability for workpieces to recirculate into a
machining system and for workpieces to bypass certain machine tools within the system. None
of the other prior art systems taught the "recirculate" and "bypass" features taught by Wagenseil.
See LaBounty, 958 F.2d at 1075-76, 22 U.S.P.Q.2D (BNA) at 1032 (undisclosed prior art items
are material when they disclose more relevant features than cited items).
The court further based its finding of materiality on extensive evidence showing that Whitson
indicated during foreign prosecution that Wagenseil was the most relevant prior art to the
corresponding foreign system 24 applications of which he was aware. n9 Also, the evidence
showed that patent examiners in several foreign countries considered Wagenseil material to the
system 24 claims and that Whitson had amended and distinguished system 24 claims in foreign
patent offices over Wagenseil. In this regard, the court was mindful of the risk in relying on
foreign patent prosecution in light of differences in disclosure requirements, claim practice, form
of application, and standard of patentability. Cf. Heidelberger Druckmaschinen AG v. Hantscho
Commercial Prods., Inc., 21 F.3d 1068, 1072 n.2, 30 U.S.P.Q.2D (BNA) 1377, 1379 n.2 (Fed.
Cir. 1994) ("The theories and laws of patentability vary from country to country, as do
examination practices."); but see Manual of Patent Examining Procedure ("MPEP") n10 §
2001.06(a) (4th ed., rev. 8, Oct. 1981) ("Applicants . . . have a duty to bring to the attention of
the Office any material prior art or other information cited or brought to their attention in any
related foreign application. The inference that such prior art or other information is material is
especially strong where it is the only prior art cited or where it has been used in rejecting the
claims in the foreign application."). On the evidence presented, even that independent of the
admissions in the foreign prosecution, we cannot say that the court clearly erred in finding that a
reasonable examiner would have considered Wagenseil important in deciding the patentability of
the pending system 24 claims in the U.S. application.
n9 In a response to the German Patent Office, for example, Whitson cited a number of prior
art references, including others cited in the United States, and stated that, "in the opinion of
the applicant, the [Wagenseil reference] comes closest to the subject of the application."
n10 "The MPEP [is] commonly relied upon as a guide to patent attorneys and patent
examiners on procedural matters." Litton Sys., Inc. v. Whirlpool Corp., 728 F.2d 1423, 1439,
221 U.S.P.Q. (BNA) 97, 107 (Fed. Cir. 1984). While the MPEP does not have the force of
law, it is entitled to judicial notice as an official interpretation of statutes or regulations as
long as it is not in conflict therewith. Id. at 1439, 221 U.S.P.Q. (BNA) at 107.
Molins next argues that the court erred in finding that Whitson possessed the requisite intent to
deceive the PTO. "Intent" commonly means: "Design, resolve, or determination with which [a]
person acts[; a] state of mind in which a person seeks to accomplish a given result through a
course of action." Black's Law Dictionary at 810 (6th ed. 1990). Intent need not be proven by
direct evidence; it is most often proven by a showing of acts, the natural consequences of which
are presumably intended by the actor. Kansas Jack, Inc. v. Kuhn, 719 F.2d 1144, 1151, 219
U.S.P.Q. (BNA) 857, 861 (Fed. Cir. 1983). Generally, intent must be inferred from the facts and
circumstances surrounding the applicant's conduct. Paragon Podiatry Lab., Inc. v. KLM Lab.,
Inc., 984 F.2d 1182, 1189-90, 25 U.S.P.Q.2D (BNA) 1561, 1567 (Fed. Cir. 1993).
"The drawing of inferences, particularly in respect of an intent-implicating question . . . is
peculiarly within the province of the fact finder that observed the witnesses." Rolls-Royce Ltd. v.
GTE Valeron Corp., 800 F.2d 1101, 1110, 231 U.S.P.Q. (BNA) 185, 192 (Fed. Cir. 1986). Since
the fact-finder has personally heard the testimony and observed the demeanor of the witnesses,
we accord deference to the fact-finder's assessment of a witness's credibility and character. See
General Electro Music Corp. v. Samick Music Corp., 19 F.3d 1405, 1411, 30 U.S.P.Q.2D (BNA)
1149, 1154 (Fed. Cir. 1994). However, "given the ease with which a relatively routine act of
patent prosecution can be portrayed as intended to mislead or deceive, clear and convincing
evidence of conduct sufficient to support an inference of culpable intent is required." Northern
Telecom, Inc. v. Datapoint Corp., 908 F.2d 931, 939, 15 U.S.P.Q.2D (BNA) 1321, 1327 (Fed.
Cir.), cert. denied, 498 U.S. 920 (1990). See also Tol-O-Matic, Inc. v. Proma Produkt-Und
Marketing Gesellschaft m.b. H., 945 F.2d 1546, 1554, 20 U.S.P.Q.2D (BNA) 1332, 1339 (Fed.
Cir. 1991) ("Forfeiture [of enforceability] is not favored as a remedy for actions not shown to be
culpable.").
Thus, the alleged conduct must not amount merely to the improper performance of, or
omission of, an act one ought to have performed. Rather, clear and convincing evidence must
prove that an applicant had the specific intent to accomplish an act that the applicant ought not to
have performed, viz., misleading or deceiving the PTO. In a case involving nondisclosure of
information, clear and convincing evidence must show that the applicant made a deliberate
decision to withhold a known material reference.
The court based its finding of intent on the following evidence. Whitson, a seasoned patent
practitioner, who was aware of the duty to disclose material information to the PTO, knew of a
highly material reference but did not cite it, or any other reference, to the PTO during the entire
13 years in which he was involved in prosecuting the U.S. patent applications that led to the '563
patent. During the time the applications were pending, Whitson represented to foreign patent
offices that Wagenseil was the closest prior art. Whitson was on several occasions reminded of
Wagenseil's materiality through its prominence in the prosecution of several foreign counterpart
applications with which Whitson was intimately involved. The court rejected Molins' argument
that Whitson had acted in good faith and simply overlooked Wagenseil, since he or his associates
had focused on that reference several times during more than ten years of foreign prosecution
and never cited Wagenseil during 13 years of prosecution. Under these circumstances, we cannot
say that the court improperly inferred that Whitson made a deliberate decision to withhold a
known, material reference. Failure to cite to the PTO a material reference cited elsewhere in the
world justifies a strong inference that the withholding was intentional.
Issues of inequitable conduct are most difficult both for trial courts and reviewing appellate
courts. One who has engaged in inequitable conduct has inflicted damage on the patent
examining system, obtaining a statutory period of exclusivity by improper means, and on the
public, which must face an unlawfully-granted patent. Loss of one's patent and damage to
reputation are justified penalties for such conduct. On the other hand, unjustified accusations of
inequitable conduct are offensive and unprofessional. They have been called a "plague" on the
patent system. See Burlington Indus., Inc. v. Dayco Corp., 849 F.2d 1418, 1422, 7 U.S.P.Q.2D
(BNA) 1158, 1161 (Fed. Cir. 1988) ("The habit of charging inequitable conduct in almost every
major patent case has become an absolute plague."). Unjustified accusations may deprive
patentees of their earned property rights and impugn fellow professionals. They should be
condemned.
Separating one from the other is a difficult task assigned to trial courts, who have the
opportunity to find facts, hear witnesses, and judge credibility. Were we to have been in the trial
court's shoes in this case, we do not know how we would have come out. We are, however,
"only" the reviewing court, obligated to determine whether the court misapplied the law, made
clearly erroneous findings of fact, or abused its discretion. We do not believe it committed any of
these errors with regard to Whitson's failure to cite Wagenseil.
We are mindful of the complexities of conducting a worldwide patent prosecution in a crowded
art, attempting to represent one's client or company properly, and yet fulfill one's duty to various
patent offices. Things can "fall through the floorboards" and not arise from an intent to deceive.
We recognize that Wagenseil and other references from the foreign prosecution were cited
eventually to the PTO and that the examiner initialed them and passed the reexamination
application to issue thereafter. However, the references were not cited when they should have
been. There were findings that Wagenseil was known to be material, and the trial court heard
testimony and judged matters of credibility concerning intent. Those who are not "up front" with
the PTO run the risk that, years later, a fact-finder might conclude that they intended to deceive.
That is what appears to have happened here and we must affirm the trial court with respect to
Whitson's behavior.
Molins has not persuaded us that the trial court, which conducted a thorough and careful
analysis of the case, clearly erred in determining that Whitson knew of a material reference and
that he intentionally withheld it from the PTO. We therefore conclude that the court did not make
clear errors of fact and did not abuse its discretion in determining that Whitson's nondisclosure of
Wagenseil amounted to inequitable conduct. Having determined that inequitable conduct
occurred in the procurement of the '563 patent, all claims of that patent are accordingly
unenforceable. See Kingsdown, 863 F.2d at 877, 9 U.S.P.Q.2D (BNA) at 1392.
The court also concluded that the inequitable conduct in the prosecution of the '563 patent
extended to the '410 patent, since that patent "relied on the '563 patent." See Keystone Driller
Co. v. General Excavator Co., 290 U.S. 240, 245-47, 78 L. Ed. 293, 54 S. Ct. 146 (1933);
Driscoll v. Cebalo, 731 F.2d 878, 884-85, 221 U.S.P.Q. (BNA) 745, 750 (Fed. Cir. 1984). This
determination has not been challenged by appellants. Thus, the '410 patent is unenforceable as
well.
We next examine the remaining instances of involved conduct, not because they alter the
patents' unenforceability, but because of their impact on the court's finding of an exceptional case
and consequent award of damages.
2. Hirsh's and Smith's Post-Issuance Disclosure of Wagenseil
The court determined that Hirsh and Smith, once they discovered Wagenseil, "buried" it by
submitting it with a large group of other prior art and, in doing so, attempted to deceive the PTO.
Upon issuance of the '563 patent in January of 1983, Hirsh undertook a review of the
prosecution files from the corresponding foreign cases, all of which Molins had abandoned by
1976. When Hirsh reviewed the German, Dutch, and Japanese prosecution files, he became
aware of a number of prior art references, including Wagenseil, that had not been cited to the
PTO during the '563 patent prosecution. Hirsh notified Smith of his discovery. n12 Because the
prior art references cited in the foreign cases had not been cited to the PTO, Hirsh and Smith
were concerned about the validity and enforceability of the '563 patent and sought the advice of
outside counsel.
n12 Despite Smith's and Whitson's close working relationship, the court held that Textron
failed to show by clear and convincing evidence that Smith knew of or "cultivated ignorance"
regarding the existence of Wagenseil before he was informed of the reference by Hirsh.
Following this consultation, on September 21, 1984, Hirsh and Smith filed a document citing a
great deal of prior art under 37 C.F.R. § 1.501 n13 in the '563 patent file. The document was 11
pages in length and contained a listing of 23 U.S. patents, 27 foreign patents, and 44 U.S. and
foreign printed publications. The citation was not accompanied by any comment or discussion
concerning the relevancy of the patents and printed publications, nor were translations provided
for most of the foreign patents and publications.
n13 At the relevant time, 37 C.F.R. § 1.501(a) read:
§ 1.501 Citation of prior art in patent files.
(a) At any time during the period of enforceability of a patent, any person may cite to the
Patent and Trademark Office in writing prior art consisting of patents or printed publications
which that person states to be pertinent and applicable to the patent and believes to have a
bearing on the patentability of any claim of a particular patent. If the citation is made by the
patent owner, the explanation of pertinency and applicability may include an explanation of
how the claims differ from the prior art.
37 C.F.R. § 1.501 (1984).
After the '563 patent was accepted for reexamination, Hirsh and Smith submitted a response to
the first office action, requesting that the examiner consider and make of record all of the
documents contained in the Rule 501 prior art citation. Hirsh and Smith provided English
language equivalents or translations of the foreign documents and briefly commented as to the
content of the cited art. They also cited the same prior art during prosecution of the '410 patent.
The court concluded that, by "burying" Wagenseil in a multitude of other references, Hirsh and
Smith intentionally withheld it from the PTO because this manner of disclosure was tantamount
to a failure to disclose. Citing Penn Yan Boats, Inc. v. Sea Lark Boats, Inc., 359 F. Supp. 948,
175 U.S.P.Q. (BNA) 260 (S.D. Fla. 1972), aff'd, 479 F.2d 1328, 178 U.S.P.Q. (BNA) 577 (5th
Cir.), cert. denied, 414 U.S. 874 (1973), the court stated that Hirsh's and Smith's failure to
highlight Wagenseil in light of their knowledge of Whitson's actions in the foreign prosecutions
violated their duty of candor to the PTO. Citing our precedent, Textron asserts that Smith's and
Hirsh's conduct is "inexcusable, fraudulent, and cannot operate to cure Whitson's inequitable
conduct." See Rohm & Haas Co. v. Crystal Chem. Co., 722 F.2d 1556, 220 U.S.P.Q. (BNA) 289
(Fed. Cir. 1983), cert. denied, 469 U.S. 851 (1984) (where intentional material
misrepresentations have been made, a "cure" through voluntary efforts during prosecution must
be demonstrated by clear, unequivocal, and convincing evidence).
Neither Molins nor Smith takes the position that the subsequent citation of Wagenseil during the
reexamination proceeding or the '410 patent prosecution cured the failure to cite the reference
during the original prosecution. See id.; Precision Instrument, 324 U.S. at 818. Rather, it is
Molins' position, which we have rejected above, that Whitson's failure to cite Wagenseil during
the '563 prosecution did not amount to inequitable conduct. We therefore address, not whether
the subsequent citation of Wagenseil cured the previous nondisclosure, but whether the court
erred in holding that the method of disclosure by Hirsh and Smith after the '563 patent issued
constituted inequitable conduct.
In Penn Yan, an applicant submitted a letter to the PTO regarding a patent application about to
issue, which stated: "Before the application was filed, applicant made a preliminary patentability
search, and discovered the following pertinent references . . . ." 175 U.S.P.Q. (BNA) at 271.
Following the statement, there appeared a list of thirteen references. The court held that
inequitable conduct had occurred because the thirteenth reference listed, a patent, was not in fact
discovered as a result of a pre-examination search, but had issued more than one year after the
filing date of the patent application at issue. Id. at 271-72. The court found that the purpose of
the misrepresentation was to "bury the [thirteenth reference] in a long list of allegedly old prior
art patents in the hope that the Patent Examiner, having already allowed the [claims at issue],
would ignore the list and permit the [patent] to issue." Id. at 272. Thus, in Penn Yan, the
reference was characterized in such a way as to mislead the PTO. Here, the reference was not
mischaracterized, but it was submitted along with a multitude of other references.
At the time of the Rule 501 prior art submission, it was desirable practice, but not required, to
particularly point out to the examiner the relevance of cited material prior art. Compare MPEP §
2002.03 (4th ed., rev. 2, Apr. 1980) (failure to comment on the relevance of prior art submitted
or failure to identify an especially relevant passage buried in an otherwise less or non-relevant
text may constitute a failure to comply with the duty of disclosure) with 37 C.F.R. § 1.98 (1992)
(no explanation of relevance necessary for information in the English language). Moreover,
"burying" a particularly material reference in a prior art statement containing a multiplicity of
other references can be probative of bad faith. Cf. MPEP § 2004, Item 13 (4th ed., rev. 5, Jan.
1981) ("Don't submit long lists of prior art if it can be avoided. Eliminate clearly irrelevant and
marginally pertinent cumulative prior art. If a long list is submitted, highlight those references
which may be of most significance."). However, "intent to deceive should be determined in light
of the realities of patent practice, and not as a matter of strict liability whatever the nature of the
action before the PTO." Northern Telecom, 908 F.2d at 939, 15 U.S.P.Q.2D (BNA) at 1327.
Hirsh and Smith discovered a multitude of uncited references in related foreign files after the
'563 patent issued. They disclosed the references within a relatively short time under Rule 501
and subsequently cited the references in the reexamination and '410 patent prosecution. Putting
aside for now Whitson's impropriety in not citing the prior art earlier, Hirsh and Smith did make
an attempt to repair the situation. The examiner initialed each reference, indicating his
consideration of the same, and stated that he had considered all of the cited prior art. Absent
proof to the contrary, we assume that the examiner did consider the references. Id., 15
U.S.P.Q.2D (BNA) at 1327 ("It is presumed that public officials do their assigned jobs."). n14
These circumstances therefore do not present clear and convincing evidence of intent on the part
of Hirsh or Smith to conceal Wagenseil from the PTO during the reexamination. Thus, the
court's finding in this regard is clearly erroneous, and the determination that the method of
disclosure constituted inequitable conduct cannot be sustained.
n14 Presumably, the examiner could have refused to consider the references if their
submission did not comport with proper PTO procedure.
3. Whitson's and Smith's Nondisclosure of the Lemelson Patents
During the prosecution of the claims that ultimately issued in the '563 patent, the principal
references cited by the examiner against certain of the claims included patents issued in the name
of Jerome Lemelson. These patents described an automatic storage system (U.S. Patent
3,049,247) and an automatic production apparatus (U.S. Patent 3,313,014 and its Reissue
26,770). The '014 patent was cited by the examiner in an office action in 1969. Subsequently, the
examiner cited the '770 and '247 patents. The court determined that Whitson and Smith engaged
in inequitable conduct because they knew of the Lemelson '247, '014, and '770 patents, which
were highly material, and they did not disclose those patents to the PTO. Molins and Smith assert
that the court erred when it concluded that Whitson and Smith engaged in inequitable conduct in
failing to cite the Lemelson patents because the patents were actually cited by the PTO and
considered during the '563 patent prosecution, were used to reject pending claims, and were
overcome prior to issuance of the '563 patent.
"When a reference was before the examiner, whether through the examiner's search or the
applicant's disclosure, it cannot be deemed to have been withheld from the examiner." Scripps,
927 F.2d at 1582, 18 U.S.P.Q.2D (BNA) at 1015; Orthopedic Equipment Co. v. All Orthopedic
Appliances, Inc., 707 F.2d 1376, 1383, 217 U.S.P.Q. (BNA) 1281, 1286 (Fed. Cir. 1983)
(nondisclosure not material because the examiner independently ascertained the existence of the
undisclosed prior art). The Lemelson patents were indeed of record in the '563 patent application.
We agree with Molins and Smith that the court's finding that the Lemelson patents were withheld
was clearly erroneous. Thus, the failure of Hirsh and Smith to cite these references to the PTO
did not constitute inequitable conduct.
4. Smith's Nondisclosure of the Lemelson Application
During the time that the '563 patent was being prosecuted, Smith was also prosecuting a
machine tool application, serial number 107,357, that named Lemelson as inventor. At trial,
Textron argued that Lemelson claim 11 and Williamson claim 160 defined the same patentable
invention, and that Smith violated his duty of candor by not disclosing the Lemelson application
to the patent examiner responsible for the Williamson application. See MPEP § 2001.06(b) (4th
ed., rev. 8, Oct. 1981) (duty to disclose material information includes "duty to bring to the
attention of the examiner . . . information within [applicant's] knowledge as to other co-pending
United States applications which are 'material to the examination' of the application in
question."). The court found that Smith's failure to disclose the copending application of
Lemelson constituted inequitable conduct because the court found that claim 11 of the Lemelson
application was material to the patentability of claim 160 of the '563 application, and because the
court inferred an intent to deceive the PTO from the fact of Smith's dual representation of Molins
and Lemelson. Smith asserts that the court erred in finding that information regarding the
Lemelson application would have been material to the examiner of the '563 patent and that Smith
intended to deceive the examiner by not disclosing such information.
The position in which Smith placed himself was one fraught with possible conflict of interest
because Smith's dual representation of two clients seeking patents in closely related technologies
created a risk of sacrificing the interest of one client for that of the other and of failing to
discharge his duty of candor to the PTO with respect to each client. Whether or not there was a
conflict of interest, however, is not before us, and we express no opinion thereon. Nor do we
express any opinion regarding the apparent conflict between an attorney's obligations to the PTO
and the attorney's obligation to clients.
However, regarding Smith's obligation to the PTO, which is before us, we agree with Smith that
Textron failed to establish by clear and convincing evidence that inequitable conduct occurred in
the nondisclosure of claim 11 of the Lemelson application. Lemelson claim 11 was not material
to the patentability of the '563 claims because it was cumulative to art already made of record
during prosecution of the '563 patent. A reference that is cumulative to other references of record
does not meet the threshold of materiality needed to prove inequitable conduct. See Scripps, 927
F.2d at 1582, 18 U.S.P.Q.2D (BNA) at 1015. Claim 11 was no more pertinent to Williamson
claim 160 than was claim 26 of the Lemelson '770 patent, which was already of record in the
'563 patent prosecution. Thus the court's finding that the Lemelson claim 11 was material was
clearly erroneous and the court's determination of inequitable conduct based on that finding was
an abuse of discretion.
Textron also asserts that Smith took inconsistent positions before the PTO in the course of his
dual representation. Although Textron does not assert that this in itself amounted to inequitable
conduct, Textron states that "the Williamson '563 examiner would have been very interested to
know that Smith had, in prosecuting the Lemelson applications, admitted that the [1954
grandparent] application disclosed the very combination which Smith had thrice argued [in the
Williamson applications] was neither suggested nor disclosed by [that] application, and which
Smith had argued was 'abandoned' by Lemelson." However, Smith did not in fact make that
admission. In prosecuting the Williamson application, he only asserted that neither the Lemelson
patents of record nor their grandparent suggested the combination of an automatic warehousing
system and an automatic production apparatus. During prosecution of the Lemelson
applications, on the other hand, Smith urged the patentability of claim 11, which recited a
production line in which a master control device controlled transfer devices and machine tools,
and argued that the Lemelson grandparent provided support for such a claim. These are different
assertions.
B. Exceptional Case
Molins and Smith assert that the district court erred in finding this to be an exceptional case
warranting an award of attorney fees under 35 U.S.C. § 285. We review the court's underlying
factual findings under the clearly erroneous standard and its underlying legal conclusions de
novo. Reactive Metals & Alloys Corp. v. ESM, Inc., 769 F.2d 1578, 1583, 226 U.S.P.Q. (BNA)
821, 824 (Fed. Cir. 1985). If these factual and legal underpinnings withstand scrutiny, we review
the award of attorney fees, i.e., whether the award was appropriate and the amount reasonable,
for abuse of discretion. On the other hand, if the underpinnings are partially reversed, we may
remand for further evaluation by the trial court.
The court partially based its finding that the case was exceptional on evidence of unfair
litigation conduct on the part of Molins. Specifically, the court found that Hirsh selectively
destroyed records pertaining to the prosecution of the system 24 invention after Molins had
begun contemplating litigation, precluding any potential defendant from conducting full and fair
discovery. The court also found that Smith acted in bad faith in obstructing discovery and in
testifying inconsistently.
Molins states that the records that were destroyed were abandoned foreign patent files, and that
any citations of references and relevant correspondence with the foreign patent offices were sent
to counsel in the United States for advice concerning the failure to cite these references to the
PTO. Companies are entitled to maintain file destruction programs without being found to have
improperly destroyed evidence. However, the district court judge is in the best position to
monitor parties' litigation conduct and can best determine whether any destruction was part of an
established and legitimate records disposal program. See Beckman Instruments, Inc. v. LKB
Produkter AB, 892 F.2d 1547, 1552, 13 U.S.P.Q.2D (BNA) 1301, 1305 (Fed. Cir. 1989).
Furthermore, the district court is "the most injured by misconduct at the pretrial and trial stages."
Rolls-Royce, 800 F.2d at 1111, 231 U.S.P.Q. (BNA) at 192. The court judged the parties' conduct
here, making findings adverse to Molins and Smith. Neither Molins nor Smith has convinced us
of clear error in the court's findings regarding their litigation conduct. However, because the
court also partly based its finding that the case was exceptional on the "pattern of repeated
instances of inequitable conduct on the part of Smith, Whitson, and Hirsh," in addition to Hirsh's
and Smith's litigation conduct, we remand for the court to reconsider its finding that the case is
exceptional and its award of attorney fees in light of our conclusions regarding the specific types
of conduct involved.
Such reconsideration should take into account the fact that we have affirmed the holding of
inequitable conduct in Whitson's failure to cite Wagenseil during the original prosecution of the
'563 patent, reversed the holding that Hirsh's and Smith's method of citing references post-
issuance constituted inequitable conduct, reversed the holding that Whitson's and Smith's
nondisclosure of the Lemelson patents constituted inequitable conduct, reversed the holding that
Smith's nondisclosure of the Lemelson application constituted inequitable conduct, and affirmed
the court's findings regarding the litigation misconduct of Hirsh and Smith. Thus, the holding
that Smith is jointly and severally liable cannot be based on Smith's having engaged in
inequitable conduct before the PTO.
CONCLUSION
The judgment of the district court holding U.S. Patents 4,369,563 and 4,621,410 unenforceable
due to inequitable conduct is affirmed on the basis that Molins' attorney Whitson intentionally
withheld a material reference from the PTO.
